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Financial Accounting : Periodic Inventories

Periodic Inventories
Olsen Company uses the periodic inventory method and had the following inventory information available for the month of November.

Date Transaction Units Unit Cost
11/1 Beginning inventory 400 $3
11/5 Purchase No. 1 600 $5
11/12 Sale No. 1 (300)
11/18 Purchase No. 2 400 $6
11/25 Sale No. 2 (600)

Answer the following independent questions and show computations supporting your answers.

1. Assume that the company uses the average cost method. What is the dollar value of the ending inventory on November 30?

2. Assume that the company uses the LIFO inventory method. What is the dollar value of the cost of goods sold during November?

3. Assume that the company uses the FIFO inventory method. The dollar value of the ending inventory on November 30 is:

Solution Preview

1. Assume that the company uses the average cost method. What is the dollar value of the ending inventory on November 30?
* Using average cost method, the total units before the first sale is: 400+600=1000
and the total cost of these units = 400*3+600*5=4200
Then the average unit cost = 4200/1000= $4.2
So the cost of the first 300 units sold = 300*4.2 = 1260

Now we have (1000-300)*4.2=$2940 as inventory
With new purchase, the total cost turns to be ...

Solution Summary

Average cost, LIFO and FIFO are applied to periodic inventories.

$2.19