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Inventory Methods: FIFO, LIFO, Average Cost

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Express Lane, a regional convenience store chain, maintains milk inventory by the gallon. The first month's milk purchases and sales at its Freeport, FL, location follows:
Nov 2 1 gallon @ $2.00 each
6 2 gallons @ $2.10 each
13 2 gallons @ $2.20 each
14 The store sold 4 gallons of milk to a customer.

1.Describe which costs would be sold and which costs would remain in inventory. Then, identify the amount that would be reported in inventory on November 15 using:
a. FIFO.
b. LIFO.
c.average cost.

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Solution Summary

In this solution we apply three inventory methods to a problem.

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Eddings Company had a beginning inventory of 400 units.

P6-3A Eddings Company had a beginning inventory of 400 units of Product XNA at a cost of
$8.00 per unit. During the year, purchases were:

Feb. 20 600 units at $9 Aug. 12 300 units at $11

May 5 500 units at $10 Dec. 8 200 units at $12

Determine cost of goods sold and ending inventory using FIFO, LIFO, and average-cost with analysis.
(SO 2, 3)

Eddings Company uses a periodic inventory system. Sales totaled 1,500 units.

(b) Cost of goods sold:
FIFO $13,600
LIFO $15,200
Average $14,475
(a) Determine the cost of goods available for sale.

(b) Determine (1) the ending inventory, and (2) the cost of goods sold under each of the assumed
cost flow methods (FIFO, LIFO, and average). Prove the accuracy of the cost of goods sold
under the FIFO and LIFO methods.

(c) Which cost flow method results in (1) the lowest inventory amount for the balance sheet, and

(2) the lowest cost of goods sold for the income statement?

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