Reference no: EM131575195
Computation of Month end Inventory and cost of goods sold :
There are three methods of Inventory accounting.
a) First In First Out method
b) Last In First Out method and
c) Weighted Average Method
All the above methods are used around the globe.
But for now, let us focus on First In First Out and Last In First Out method.
Weighted Average method is irrelevant here at the given situation.
Under FIFO ( First in First Out Method)
The abbreviated version of First In First Out is called FIFO Method.
Under this method inventory accounting as well as costing method is based on goods produced or purchased first are the first sold or served.
Therefore, the inventory at the end of any give period shall be those goods that are produced or purchased most recently in inventory.
FIFO is one of the methods used to determine Cost of Goods Sold.
Now based on the above definition let us work out the required closing inventory on 31st May and cost of goods sold.
Let us first calculate the cost of goods available for sale as under:
|
Date
|
Particulars
|
Unit
|
Unit Cost
$
|
Cumulative Total
Units
|
Total Cost
$
|
Cumulative Total Cost
$
|
|
1st May
|
Opening Inventory
|
30 units
|
8.00
|
30
|
240.00
|
240.00
|
|
15th May
|
Purchases
|
25 units
|
11.00
|
55
|
275.00
|
515.00
|
|
24th May
|
Purchases
|
35 units
|
12.00
|
90
|
420.00
|
935.00
|
Computation of Month end Inventory and cost of goods sold :
Under LIFO ( Last in First Out Method)
The abbreviated version of Last In First Out is called LIFO Method.
Under this method inventory accounting as well as costing method is based on goods produced or purchased last are the first sold or served.
Therefore, the inventory at the end of any give period shall be those goods that are produced or purchased first.
LIFO is one of the methods used to determine Cost of Goods Sold.
LIFO is widely used in US economy
Now based on the above definition let us work out the required closing inventory on 31st May and cost of goods sold.