# 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 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