FIFOandLIFOCosts Under Perpetual Inventory System

The following units of an item were available for sale during the year:

Beginning inventory 26 units at $43

Sale 11 units at $65

First purchase 21 units at $44

Sale 9 units at $67

Second purchase 10 units at $45

Sale 30 units at $69

a.What is the total cost of the ending inventory according to FIFO?

$

fill in the blank 1

b.What is the total cost of the ending inventory according to LIFO?

fill in the blank 2

Notes:

a. Note that this exercise uses the perpetual inventory system. FIFO means that the first units purchased are assumed to be the first to be sold. Therefore, ending inventory is made up of the most recent purchases. Think of your inventory in terms of "layers." The first sale comes from the oldest layer - beginning inventory. Is the remaining amount of the beginning inventory layer enough to satisfy the second sale? If not, the remaining amount of units sold should be taken from the first purchase layer. Any remainder from the first purchase will then be considered as the oldest goods to be used for the second sale. If the remainder from the first purchase is not enough to satisfy the third sale, then cost of merchandise sold will come from the second purchase. The remaining units from the second purchase make up the ending inventory.

b. Note that this exercise uses the perpetual inventory system. When the perpetual inventory system is used, revenue is recorded each time a sale is made along with an entry to record the cost of the merchandise sold. LIFO means the last units purchased are assumed to be the first to be sold. Therefore after each sale, the remaining or ending inventory is made up of the first purchases. Think of your inventory in terms of "layers." The first sale is completely satisfied by the beginning inventory. The second sale will be completely satisfied by the most recent purchase or be partially satisfied by the most recent units purchased and then by the units remaining in beginning inventory. The third sale is satisfied or partially by the most recent units from the second purchase if there are any units remaining from the second purchase. If third sale is partially satisfied, the remaining units will come from the beginning inventory. The unsold units remaining from the second purchase (if any) and the unsold units from beginning inventory are added together as two layers to calculate the ending inventory.