# Cost Flow Assumptions, US GAAP

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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) .

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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