EX 7-3 Perpetual inventory using FIFO

Beginning inventory, purchases, and sales data for portable DVD players are as follows:

June 1              Inventory                    75 units at $40
        6              Sale                             60 units
      14              Purchase                     90 units at $42
      19              Sale                             50 units
      25              Sale                             20 units
     30               Purchase                     80 units at $45

The business maintains a perpetual inventory system, costing by the first-in, first-out
method.

a. Determine the cost of the merchandise sold for each sale and the inventory balance
after each sale, presenting the data in the form illustrated in Exhibit 3.

b. Based upon the preceding data, would you expect the inventory to be higher or
lower using the last-in, first-out method?

Answer:
a.
Portable Video Players  Purchases Cost of Merchandise Sold Inventory  
Date  
Quantity 
Unit Cost 
Total Cost  
Quantity 
Unit Cost 
Total Cost  
Quantity 
Unit Cost 
Total Cost June 1        75  40  3,000  6     60  40  2,400  15  40  600  14  90  42  3,780     15  90  40  42  600  3,780  19     15  35  40  42  600  1,470  55  42  2,310  25     20  42  840  35  42  1,470  30  80  45  3,600     35  80  42  45  1,470  3,600  30 Balances      5,310    5,070 


b. Since the prices rose from $40 for the June 1 inventory to $45 for the purchase on June 30, we would expect that under last-in, first-out the inventory would be lower.

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