[/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 x32) / (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 |