Question

Causwell Company began 2018 with 11,000 units of inventory on hand. The cost of each unit was $4.00. During 2018 an additional 35,000 units were purchased at a single unit cost, and 21,000 units remained on hand at the end of 2018 (25,000 units therefore were sold during 2018). Causwell uses a periodic inventory system. Cost of goods sold for 2018, applying the average cost method, is $108,750. The company is interested in determining what cost of goods sold would have been if the FIFO or LIFO methods were used. Required: 1. Determine the cost of goods sold for 2018 using the FIFO method. [Hint: Determine the cost per unit of 2018 purchases.] 2. Determine the cost of goods sold for 2018 using the LIFO method.

Answer 1

Answer and Explanation:

For computing the cost of goods sold under two method first we have to determine the cost per unit which is shown below:

The average cost per unit is

= $108,750 ÷ 25,000 units

= $4.35

Now the cost per unit is

Total cost (11,000 units + 35,000 units) × $4.35   $200,100

Beginning units (11,000 units × $4) $44,000

The Remaining cost for 35000 units ($200,100 - $44,000)  $156,100

Divide by  Purchase cost per unit of 35000 units   $4.46

Now the cost of goods sold are as follows

1. Under the FIFO method

Beginning        11,000 × $4.00  $44,000  

Purchased        14,000 × $4.46  $62,440  

Total         25,000           $1,06,440

2. Under the LIFO method

Purchased        25,000 × $4.46  $1,11,500