Answer to Question #111437 in Finance for Abdul Majeed

Question

Suppose you have 50 units of inventory at the beginning of month of April 01, 2020, per unit cost is XXX [Suppose per unit cost at your own which must not match with someone else]. On 5th April, 2020 you purchased 100 more units at the rate of XXX, after 3 days on 8th April, 2020 you sold 70 units and on 10th April , 2020 purchased 120 units and the per unit cost is XXX.. On 15th April you sold 130 units.
After 5 days on 20th April you purchased 150 units at the rate of XXX, and 2 days later you purchased 50 units at the rate of XXX and on 30th April, 2020 you sold 200 units.
You are required to make table of inventory valuation under FIFO, LIFO and Average costing method.

Answer 1

Let's take the following as an example prices:

Suppose you have 50 units of inventory at the beginning of month of April 01, 2020, per unit cost is 5 [Suppose per unit cost at your own which must not match with someone else]. On 5th April, 2020 you purchased 100 more units at the rate of 6, after 3 days on 8th April, 2020 you sold 70 units and on 10th April , 2020 purchased 120 units and the per unit cost is 7. On 15th April you sold 130 units.

After 5 days on 20th April you purchased 150 units at the rate of 4, and 2 days later you purchased 50 units at the rate of 3 and on 30th April, 2020 you sold 200 units.

You are required to make table of inventory valuation under FIFO, LIFO and Average costing

FIFO

quantity price inventory cost

50 5 250 balance

100 6 600 bought

70:

50 5 250 Sales

20 6 120 Sales

120 7 840 bought

130:

80 6 240 Sales

50 7 350 Sales

150 4 600 bought

50 3 150 bought

200:

70 7 490 Sales

130 4 520 Sales

20 4 80balance

50 3 150 balance

LIFO

quantity price inventory cost

50 5 250 balance

100 6 600bought

70:

70 6 420Sales

120 7 840bought

130:

120 7 840Sales

10 6 600Sales

150 4 600bought

50 3 150bought

200:

50 3 150Sales

150 4 600Sales

20 6 120 balance

50 5 250balance

Average costing

quantity price inventory cost

50 5 250 balance

100 6 600 bought

70:

70 5.67 396.67 Sales

120 7 840 bought

130:

130 6.6 858 Sales

150 4 600 bought

50 3 150 bought

200:

200 4.4 880 Sales

50 3 150 balance

In the method, the average price is calculated as the weighted average cost of all stocks

$\frac{250+600}{50+100}=5.67$

In the future, the price is recalculated each time, taking into account the purchased and remaining stocks.