Question

Causwell Company began 2021 with 12,000 units of inventory on hand. The cost of each unit was $5.00. During 2021 an additional 32,000 units were purchased at a single unit cost, and 22,000 units remained on hand at the end of 2021 (22,000 units therefore were sold during 2021). Causwell uses a periodic inventory system. Cost of goods sold for 2021, applying the average cost method, is $118,800. The company is interested in determining what cost of goods sold would have been if the FIFO or LIFO methods were used.

Required:
a. Determine the cost of goods sold for 2018 using the FIFO method.
b. Determine the cost of goods sold for 2018 using the LIFO method.

Answer 1

a) COGS under FIFO = $110,340

b) COGS under LIFO = $125,850

Step-by-step explanation:

beginning inventory 12,000 units x 5 = $60,000

purchases 32,000 x ? = $?

ending inventory = 22,000 units

COGS applying weighted average = $118,800

total units sold = 12,000 + 32,000 - 22,000 = 20,000

cost per unit sold = $5.94

total cost for 44,000 units = $261,360

cost of purchased units = ($261,360 - $60,000) = $201,360

cost per unit purchased = $6.2925

COGS under LIFO = 20,000 x $6.2925 = $125,850

COGS under FIFO = (12,000 x $5) + (8,000 x $6.2925) = $110,340