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unvrs, Master's Degree
Satisfied Customers: 348
Experience:  CFA Level 2 Candidate
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# Cost of Ending Inventory (100pts)During April, Leary Company

### Resolved Question:

Cost of Ending Inventory (100pts) During April, Leary Company sold 1000 units of Product Q. Its beginning inventory and purchases during the month are shown below. (Assume the periodic inventory system is used.) April 1 Beginning inventory 200 units @ \$1 April 5 Purchases 200 units @ \$2 April 10 Purchases 200 units @ \$3 April 15 Purchases 200 units @ \$4 April 20 Purchase 200 units @ \$5 April 25 Purchase 200 units @ \$6 Compute the cost of the ending inventory under each of three methods: (a) average-cost, (b) LIFO, and (c) FIFO. Explain how you calculated each answer.
Submitted: 2 years ago.
Expert:  unvrs replied 2 years ago.

unvrs :

The ending inventory contains 200 units.
Since the purchase price increases throughout the month, the ending inventory cost would be different when we use different ways in computing the cost.
Average Cost Method:
The price can be computed using a weighted average method. So, the price is \$3.5 per unit. The ending inventory cost is \$3.5 (200) = \$700

FIFO:
Units purchased first would be used first. So, at the end of the month, the 200 units that were purchased at \$6 are left in inventory. Then under the FIFO method, the ending inventory cost is \$6*200 = \$1200.

LIFO:
Contrary to FIFO, units purchased last would be used first. When computing the ending inventory, the 200 units that were purchased at \$1 would be used. The ending inventory cost is \$1*200 = \$200.

unvrs :

Please let me know if you have any questions.

Customer:

may i get the calculation, so i can understand

unvrs :

There is not much calculation involved in this problem. Please see the answers in bold for the calculations.
Average Cost Method:
The price can be computed using a weighted average method.
[200(1)+200(2)+200(3)+200(4)+200(5)+200(6)] / 1200 = \$3.5
So, the price is \$3.5 per unit. Since there are 200 units in the ending inventory, the ending inventory cost is \$3.5(200) = \$700

FIFO:
Units purchased first would be used first. So, at the end of the month, the 200 units that were purchased at \$6 are left in inventory. Then under the FIFO method, the ending inventory cost is \$6*200 = \$1200.

LIFO:
Contrary to FIFO, units purchased last would be used first. When computing the ending inventory, the 200 units that were purchased at \$1 would be used. The ending inventory cost is \$1*200 = \$200.

unvrs :

Do you have any questions?

Customer:

i am still trying to figure out how it came out to 3.5

unvrs :

Multiply the unit price by the quantity

unvrs :

unvrs :

and then divide the sum by the total units

unvrs :

[200(1)+200(2)+200(3)+200(4)+200(5)+200(6)] / 1200 = \$3.5

Customer:

oh got it

Customer:

thank you

Customer:

accounting is not my strongest

unvrs :

I'm glad that you got it. Since the quantities for each purchase are the same, you could simply do 1+2+3+4+5+6 and then divide it by 6, but the right way to do it would be to multiply each by the quantity because if the question changes, then you would know how to approach it :-)

unvrs :

Anyway, do you have any question related to this problem?

unvrs :

Customer:

well would it be ok for me to leave it open for few hours

unvrs :

I think so.
You can "accept" it when you are ready.
Have a good day.

unvrs, Master's Degree
Satisfied Customers: 348
Experience: CFA Level 2 Candidate

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