Share
Explore BrainMass

# Cost Flow Methods: FIFO and LIFO

Which cost flow method results in (1) the highest inventory amount for the balance sheet and (2) the highest cost of goods sold for the income statement?

(1) (FIFO or LIFO) produces the highest inventory amount, \$ =(how much)
(2) (FIFO or LIFO) produces the highest cost of goods sold, \$= (how much)

Beginning Inventory 1,500 @ \$7 = \$10,500
March 5 3,500 @ \$8 = \$ 28,000
March 21 2,000 @ \$10 = \$20,000
March 13 4,000 @ \$9 = \$36,000
March 26 2,000 @ \$11 = \$22,000

The cost of goods available for sale \$116,500
Average cost per unit \$ 8.961
During March, 10,000 units were sold. Dyna uses a periodic inventory system.

10,000 units sold. 3,000 units remaining in ending inventory.
Ending Inventory
FIFO = \$26,886
LIFO
(1,500 x 7) + (1,500 x 8) = \$22,500
Average cost
3,000 x 8.961 = \$26,883

Cost of Goods Sold
Cost of goods available for sale - ending inventory = cost of goods sold
FIFO = \$89,614
LIFO
116,500 - 22,500 = \$94,000
Average cost
116,500 - 26,883 = \$89,617