1

Summary of Study Objectives

Comprehensive

267

month of March.
Inventory: March 1
Purchases:
March 10
March 20
March 30
Sales:
March 15
March 25

200 units @ 4.00

800

500 units @ 4.50

400 units @ 4.75
300 units @ 5.00

2,250
1,900
1,500

500 units
400 units

The physical inventory count on March 31 shows 500 units on hand.

Instructions
Under a periodic inventory system, determine the cost of inventory on hand at March 31 and
the cost of goods sold for March under (a) FIFO and (b) average-cost.

The cost of goods available for sale is 6,450, as follows.

Inventory:
200 units @ 4.00
Purchases:
March 10
500 units @ 4.50
March 20
400 units @ 4.75
March 30
300 units @ 5.00
Total:

800

2,250
1,900
1,500

Under a periodic inventory system, the cost of goods sold under each cost flow method is as
follows.
FIFO Method

Action Plan
Compute the total goods
available for sale, in both units
and dollars.
Compute the cost of ending
inventory under the periodic
FIFO method by allocating to the
units on hand the latest costs.
Compute the cost of ending
inventoty under the periodic
average-cost method by
allocating to the units on hand
a weighted-average cost.

Ending inventory:
Date
March 30
March 20

Units
300
200

Unit
Cost
5.00
4.75

Total
Cost
1,500
950

2,450

Cost of goods sold: 6,450 - 2,450 = 4,000

Average-Cost Method
Average unit cost: 6,450 + 1,400 = 4.61
Ending inventory: 500 X 4.61 = 2,305
Cost of goods sold: 6,450 - 2,305 = 4,145

SUMMARY OF STUDY OBJECTIVES

PLUS

The steps are (1) take a physical inventory of goods on

hand and (2) determine the ownership of goods in transit
or on consignment.

sale includes (a) cost of beginning inventory and (b) cost of

goods purchased. The inventory costing methods are: specific identification and two assumed cost flow methodsFIFO and average-cost.

2 Explain the accounting for inventories and apply the

inventory cost flow methods. The primary basis of ac-

3 Explain the financial effects of the inventory cost flow

assumptions. Companies may allocate the cost of goods

counting for inventories is cost. Cost of goods available for

available for sale to cost of goods sold and ending inventory

1 Describe the steps in determining inventory quantities.