Inventory Cost Flow

Crystal Apple Sales Company began 2014 with cash of $2,000, inventory of $3,600 (200 crystal apples that cost $18 each), $2,500 of common stock, and $3,100 of retained earnings. The following events occurred during 2014.

1. Crystal Apple purchased additional inventory twice during 2014. The first purchase consisted of 800 apples that cost $20 each, and the second consisted of 1,200 apples that cost $24 each. The purchases were on account.

2. The company sold 2,040 apples for cash at a selling price of $40 each.

Required

Determine the ending inventory and cost of goods sold using the three different cost flow assumptions: FIFO, LIFO, and Weighted Average.

Under FIFO method:Cost of Goods sold $ 44,560, Ending inventory $ 3,840

Under LIFO method: Cost of Goods sold $ 45,520 Ending inventory $ 2,880

Under Weighted average: Cost of Goods sold $44,880 Ending inventory $ 3,520

Explanation:

To solve this question, we need to make a summary of the opening inventory, purchases, sales and ending inventory

Units Value

$

Opening Inventory 200 3,600

Purchase 1 (800 Units * $ 20) 800 16,000

Purchase 1 (1,200 Units * $ 24) 1,200 28,800

Units available for sale 2,200 48,400

Units sold 2,040

Ending Inventory 160

Cost of goods sold under FIFO Method

Under FIFO method the opening inventory and the first purchases are considered

The cost of goods sold of 2,040 is made up of 200 units of opening inventory, 800 units of Purchase 1 and 1,040 units of Purchase 2.

(200 units * $ 18) + (800 units * $ 20) + (1,040 units * $ 24) =

$ 3,600 + $ 16,000 + $ 24,960 = $ 44,560

Ending inventory under FIFO Method

The ending inventory under FIFO Method is from the last purchases

160 units * $ 24 = $ 3,840

Cost of goods sold under LIFO Method

Under LIFO method the last purchases are considered first.

so the units sold of 2,040 units are considered as 1200 units from purchase 2, 800 units from purchase 1 and 40 units from opening inventory.

(1,200 Units * $ 24) + (800 units * $ 20) + (40 units * $ 18)

$ 28,800 + $ 16,000 + $ 720 = $ 45,520

Ending inventory under LIFO Method

160 units from opening inventory

160 * $ 18 = $ 2,880

Cost of goods sold under Weighted Average Method

The cost of the units available for sale are divided by the units to get a per unit weighted average cost.

$ 48,400 / 2200 units = $ 22 per unit.

The cost of goods sold is $ 22 * 2,040 units = $44,880

Ending inventory under Weighted Average Method

160 units * $ 22 per unit = $ 3,520