Answer / Explanation
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Lopez Co. reported the following current-year data for its only product. The company uses a periodic inventory system, and its ending inventory consists of 150 units—50 from each of the last three purchases.
Jan. 1 Beginning inventory 235 units @ $3.40 = $ 799
Mar. 7 Purchase 510 units @ $4.00 = 2,040
July 28 Purchase 1,150 units @ $4.60 = 5,290
Oct. 3 Purchase 1,030 units @ $4.90 = 5,047
Dec. 19 Purchase 460 units @ $5.00 = 2,300
I f we sum the total available for sale:
We have,
Total = 3,385 units $ 15,476
Now, if we move forward to determine the cost assigned to ending inventory and cost of goods sold considering that we have to round our per unit costs to 2 decimal places and final answers to the nearest dollar amount.)
W then have:
Ending inventory Cost of goods sold
(a) Specific identification
Ending Inventory =
(135 x 4.60) + (135 x 4.90) + (135 x 5.00) = $1,958
COGS =
15,476 - 1,958 = $13,518
(b) Weighted average
15,476 / 3,385 = $4.572 cost per unit
Ending Inventory
405 x 4.572 = $1,852
COGS
15,476 - 1,852 = $13,624
c) FIFO
Ending Inventory
405 x $5.00 = $2,025
COGS
15,476 - 2,025 = $13,451
(d) LIFO
Ending Inventory
(235 x 3.40) + (170 x 4.00) = $1,479
COGS
15,476 - 1,479 = $13,997
Which method yields the highest net income?
The one with the highest ending inventory.
FIFO
