Some of the information found on a detail inventory card for Slatkin Inc. for the first month of operations is as follows.

Received

Issued, Balance,

Date No. of Units Unit Cost No. of Units No. of Units

January 2 1,200 $3.00 1,200

7 700 500

10 600 3.20 1,100

13 500 600

18 1,000 3.30 300 1,300

20 1,100 200

23 1,300 3.40 1,500

26 800 700

28 1,600 3.50 2,300

31 1,300 1,000

Instructions

(a) From these data compute the ending inventory on each of the following bases. Assume that perpetual inventory records are kept in units only. (Carry unit costs to the nearest cent and ending inventory to the nearest dollar.)

(1) First-in, first-out (FIFO).

(2) Last-in, first-out (LIFO).

(3) Average cost.

(b) If the perpetual inventory record is kept in dollars, and costs are computed at the time of each withdrawal, would the amounts shown as ending inventory in (1), (2), and (3) above be the same? Explain and compute. (Round average unit costs to four decimal places.)

Step by step solution

01

Valuation of ending inventory

As the inventory records are kept in units only, the FIFO, LIFO, and Average cost would be computed based on the periodic system.

1) Inventory valuation under FIFO

Date	Units	Units Cost	Total Cost
Jan 28	1000	$3.5	$3500
	1000		$3500

2) Inventory valuation under LIFO

Date	Units	Units Cost	Total Cost
Jan 2	1000	$3	$3000
	1000		$3000

3) Inventory valuation under Weighted Average method

$$\begin{gathered} \mathbf{Average}\mathbf{}\mathbf{cost}\mathbf{}\mathbf{of}\mathbf{}\mathbf{inventory}\mathbf{=}\frac{\mathbf{Value}\mathbf{}\mathbf{of}\mathbf{}\mathbf{all}\mathbf{}\mathbf{issued}\mathbf{}\mathbf{units}}{\mathbf{Total}\mathbf{}\mathbf{issued}\mathbf{}\mathbf{units}} \\ \mathbf{=}\frac{\mathbf{(}\mathbf{1200}\mathbf{\times }\mathbf{\$}\mathbf{3}\mathbf{+}\mathbf{600}\mathbf{\times }\mathbf{\$}\mathbf{3}\mathbf{.}\mathbf{20}\mathbf{+}\mathbf{1000}\mathbf{\times }\mathbf{\$}\mathbf{3}\mathbf{.}\mathbf{30}\mathbf{+}\mathbf{1300}\mathbf{\times }\mathbf{\$}\mathbf{3}\mathbf{.}\mathbf{40}\mathbf{+}\mathbf{1600}\mathbf{\times }\mathbf{\$}\mathbf{3}\mathbf{.}\mathbf{5}\mathbf{)}}{\mathbf{(}\mathbf{1200}\mathbf{+}\mathbf{600}\mathbf{+}\mathbf{1000}\mathbf{+}\mathbf{1300}\mathbf{+}\mathbf{1600}\mathbf{)}} \\ \mathbf{=}\frac{\mathbf{\$}\mathbf{18840}}{\mathbf{5700}} \\ \mathbf{=}\mathbf{\$}\mathbf{3}\mathbf{.}\mathbf{3} \end{gathered}$$

$$\begin{gathered} \mathbf{Cost}\mathbf{}\mathbf{of}\mathbf{}\mathbf{ending}\mathbf{}\mathbf{inventory}\mathbf{=}\mathbf{Average}\mathbf{}\mathbf{cost}\mathbf{}\mathbf{of}\mathbf{}\mathbf{inventory}\mathbf{\times }\mathbf{No}\mathbf{.}\mathbf{of}\mathbf{}\mathbf{ending}\mathbf{}\mathbf{inventory} \\ \mathbf{=}\mathbf{\$}\mathbf{3}\mathbf{.}\mathbf{3}\mathbf{\times }\mathbf{1000} \\ \mathbf{=}\mathbf{\$}\mathbf{3300} \end{gathered}$$

02

Valuation of ending inventory by the perpetual method

1) Inventory valuation under FIFO

Date	Purchase			Cost of goods sold			Balance
	Units	Cost	Balance	Units	Cost	Balance	Units	Cost	Balance
Jan 2	1200	$3	$3600				1200	$3	$3600
Jan 7				700	$3	$2100	500	$3	$1500
Jan 10	600	$3.2	$1920				500	$3	$1500
							600	$3.2	$1920
Jan 13				500	$3	$1500	600	$3	$1800
Jan 18	1000	$3.3	$3300	300	$3	$900	300	$3	$900
							1000	$3.3	$3300
Jan 20				300	$3	$900
				800	$3.3	$2640	200	$3.3	$660
Jan 23	1300	$3.4	$4420				200	$3.3	$660
							1300	$3.4	$4420
Jan 26				200	$3.3	$660
				600	$3.4	$2040	700	$3.4	$2380
Jan 28	1600	$3.5	$5600				700	$3.4	$2380
							1600	$3.5	$5600
Jan 31				700	$3.4	$2380
				600	$3.5	$2100	1000	$3.5	$3500
Total				4700		$15220	1000		$3500

Ending inventory under FIFO is $3500.

2) Inventory valuation under LIFO

Date	Purchase			Cost of goods sold			Balance
	Units	Cost	Balance	Units	Cost	Balance	Units	Cost	Balance
Jan 2	1200	$3	$3600				1200	$3	$3600
Jan 7				700	$3	$2100	500	$3	$1500
Jan 10	600	$3.2	$1920				500	$3	$1500
							600	$3.2	$1920
Jan 13				500	$3.2	$1600	500	$3	$1500
							100	$3.2	$320
Jan 18	1000	$3.3	$3300	300	$3.3	$990	500	$3	$1500
							100	$3.2	$320
							700	$3.3	$2310
Jan 20				700	$3.3	$2310	200	$3	$600
				100	$3.2	$320
				300	$3	$900
Jan 23	1300	$3.4	$4420				200	$3	$600
							1300	$3.4	$4420
Jan 26				800	$3.4	$2720	200	$3	$600
							500	$3.4	$1700
Jan 28	1600	$3.5	$5600				200	$3	$600
							500	$3.4	$1700
							1600	$3.5	$5600
Jan 31				1300	$3.5	$4550	200	$3	$600
							500	$3.4	$1700
							300	$3.5	$1050
Total				4700		$15490	1000		$3350

Ending inventory under LIFO is $3350.

3) Inventory valuation under the weighted average

Date	Purchase			Cost of goods sold			Balance
	Units	Cost	Balance	Units	Cost	Balance	Units	Cost	Balance
Jan 2	1200	$3	$3600				1200	$3	$3600
Jan 7				700	$3	$2100	500	$3	$1500
Jan 10	600	$3.2	$1920				500	$3	$1500
							600	$3.2	$1920
Total							1100	$3.1091	$3420
Jan 13				500	$3.1091	$1554.55	600	$3.1091	$1865.46
Jan 18	1000	$3.3	$3300	300	$3.2284	$968.52	1300	$3.2284	$4196.92
Jan 20				1100	$3.2284	$3551.24	200	$3.2284	$645.68
Jan 23	1300	$3.4	$4420				200	$3.2284	$645.68
							1300	$3.4	$4420
Total							1500	$3.3771	$5065.68
Jan 26				800	$3.3771	$2701.68	700	$3.3771	$2363.97
Jan 28	1600	$3.5	$5600				700	$3.3771	$2363.97
							1600	$3.5	$5600
Total							2300	$3.4626	$7963.97
Jan 31				1300	$3.4626	$4501.38	1000	$3.4626	$3462.6
Total				4700		$15377.37	1000		$3462.6

Ending inventory under LIFO is $3462.6.

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