Cost Flow Assumptions, US GAAP



[/Q/]
Q10. Cost Flow Assumptions, US GAAP
Based on the information below, what is the cost of inventory sold on April 30, 20×1?

[Information for Q10]
Entity 10A had the following transactions in April:
(1) April 1, purchased 200 units of merchandise at $30 per unit.
(2) April 15, purchased 200 units at $32 per unit.
(3) April 30, sold 300 units.

Date Purchased Sold Unit Cost
1 200 . $30
15 200 . $32
30 . (300) .

[/A/]
Under US GAAP, the following assumptions are permitted to determine the cost of inventory:
(1) First-in, First-out (FIFO)
(2) Last-in, First-out (LIFO)
(3) Weighted average method

1. First-in, First-out (FIFO)
If items purchased first are assumed to be sold first, cost of 150 units of merchandise sold is $30 per unit.

Purchase Date Purchased Sold Inventory
1 200 (200) .
15 200 (100) 100

Ending inventory at April 30

Purchase Date Inventory Unit Cost Amount
15 100 $32 $3,200

2. Last-in, First-out (LIFO)
If items purchased last are assumed to be sold first, cost of 150 units of merchandise sold is $32 per unit.

Purchase Date Purchased Sold Inventory
1 200 (100) 100
15 200 (200) .

Ending inventory at April 30

Purchase Date Inventory Unit Cost Amount
1 100 $30 $3,000

3. Weighted average method
If weighted average cost of items purchased is used, cost of 150 units of merchandise sold is $31 per unit.

Purchase Date Purchased Unit Cost Amount
1 200 $30 $6,000
15 200 $32 $6,400
Total 400 $31(*) $12,400

(*) Weighted average cost
= (200 x $30 + 200 x $32) / (200 + 200) units
= ($6,000 + $6,400) / 400 units
= $12,400 / 400 units
= $31 per unit

Units of ending inventory
= 200 + 200 – 300
= 100 units

Amount of ending inventory
= 100 units x $31
= $3,100

Inventory Unit Cost Amount
100 $31 $3,100

4. Comparison

Cost flow Inventory Unit Cost Amount
FIFO 100 $32 $3,200
LIFO 100 $30 $3,000
Average 100 $31(*) $3,100
 

 

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