PR 7-3B Periodic inventory by three methods
Artic Appliances uses the periodic inventory system. Details regarding the inventory of
appliances at January 1, 2012, purchases invoices during the year, and the inventory count
at December 31, 2012, are summarized as follows:
1. Determine the cost of the inventory on December 31, 2012, by the first-in, first-out
method. Present data in columnar form, using the following headings:
Model Quantity Unit Cost Total Cost
If the inventory of a particular model comprises one entire purchase plus a portion
of another purchase acquired at a different unit cost, use a separate line for each
purchase.
2. Determine the cost of the inventory on December 31, 2012, by the last-in, first-out
method, following the procedures indicated in (1).
3. Determine the cost of the inventory on December 31, 2012, by the average cost method,
using the columnar headings indicated in (1).
4. Discuss which method (FIFO or LIFO) would be preferred for income tax
purposes in periods of (a) rising prices and (b) declining prices.
Answer:
1. First-In, First-Out Method
Model Quantity Unit Cost Total Cost AK82 3 $535 $ 1,605 2 530 1,060 CO62 6 225 1,350 6 222 1,332 DE03 1 70 70 1 65 65 FL12 4 317 1,268 ME09 6 542 3,252 1 549 549 NM57 2 232 464 TN33 5 39 195 Total................................................................. $11,210
2. Last-In, First-Out Method
Model Quantity Unit Cost Total Cost AK82 3 $520 $ 1,560 2 527 1,054 CO62 9 213 1,917 3 215 645 DE03 2 60 120 FL12 4 305 1,220 ME09 6 520 3,120 1 531 531 NM57 2 222 444 TN33 4 35 140 1 36 36 Total................................................................. $10,787
3. Average Cost Method
Model Quantity Unit Cost* Total Cost AK82 5 $528 $ 2,640 CO62 12 218 2,616 DE03 2 63 126 FL12 4 311 1,244 ME09 7 534 3,738 NM57 2 227 454 TN33 5 37 185 Total................................................................. $11,003
*Computations of unit costs: AK82: $528 = [(3 × $520) + (3 × $527) + (3 × $530) + (3 × $535)] ÷ (3 + 3 + 3 + 3) CO62 $218 = [(9 × $213) + (7 × $215) + (6 × $222) + (6 × $225)] ÷ (9 + 7 + 6 + 6) DE03: $63 = [(5 × $60) + (3 × $65) + (1 × $65) + (1 × $70)] ÷ (5 + 3 + 1 + 1) L100: $311 = [(6 × $305) + (3 × $310) + (3 × $316) + (4 × $317)] ÷ (6 + 3 + 3 + 4) ME09: $534 = [(6 × $520) + (8 × $531) + (4 × $549) + (6 × $542)] ÷ (6 + 8 + 4 + 6) NM57: $227 = [(4 × $222) + (4 × $232)] ÷ (4 + 4) TN33: $37 = [(4 × $35) + (6 × $36) + (8 × $37) + (7 × $39)] ÷ (4 + 6 + 8 + 7)
appliances at January 1, 2012, purchases invoices during the year, and the inventory count
at December 31, 2012, are summarized as follows:
Purchases Invoices
Model
Inventory,
January 1 1st 2nd 3rd
Inventory Count,
December 31
AK82 3 at $520 3 at $527 3 at $530 3 at $535 5
CO62 9 at 213 7 at 215 6 at 222 6 at 225 12
DE03 5 at 60 3 at 65 1 at 65 1 at 70 2
FL12 6 at 305 3 at 310 3 at 316 4 at 317 4
ME09 6 at 520 8 at 531 4 at 549 6 at 542 7
NM57 — 4 at 222 4 at 232 — 2
TN33 4 at 35 6 at 36 8 at 37 7 at 39 5
Instructions1. Determine the cost of the inventory on December 31, 2012, by the first-in, first-out
method. Present data in columnar form, using the following headings:
Model Quantity Unit Cost Total Cost
If the inventory of a particular model comprises one entire purchase plus a portion
of another purchase acquired at a different unit cost, use a separate line for each
purchase.
2. Determine the cost of the inventory on December 31, 2012, by the last-in, first-out
method, following the procedures indicated in (1).
3. Determine the cost of the inventory on December 31, 2012, by the average cost method,
using the columnar headings indicated in (1).
4. Discuss which method (FIFO or LIFO) would be preferred for income tax
purposes in periods of (a) rising prices and (b) declining prices.
Answer:
Model Quantity Unit Cost Total Cost AK82 3 $535 $ 1,605 2 530 1,060 CO62 6 225 1,350 6 222 1,332 DE03 1 70 70 1 65 65 FL12 4 317 1,268 ME09 6 542 3,252 1 549 549 NM57 2 232 464 TN33 5 39 195 Total................................................................. $11,210
2. Last-In, First-Out Method
Model Quantity Unit Cost Total Cost AK82 3 $520 $ 1,560 2 527 1,054 CO62 9 213 1,917 3 215 645 DE03 2 60 120 FL12 4 305 1,220 ME09 6 520 3,120 1 531 531 NM57 2 222 444 TN33 4 35 140 1 36 36 Total................................................................. $10,787
3. Average Cost Method
Model Quantity Unit Cost* Total Cost AK82 5 $528 $ 2,640 CO62 12 218 2,616 DE03 2 63 126 FL12 4 311 1,244 ME09 7 534 3,738 NM57 2 227 454 TN33 5 37 185 Total................................................................. $11,003
*Computations of unit costs: AK82: $528 = [(3 × $520) + (3 × $527) + (3 × $530) + (3 × $535)] ÷ (3 + 3 + 3 + 3) CO62 $218 = [(9 × $213) + (7 × $215) + (6 × $222) + (6 × $225)] ÷ (9 + 7 + 6 + 6) DE03: $63 = [(5 × $60) + (3 × $65) + (1 × $65) + (1 × $70)] ÷ (5 + 3 + 1 + 1) L100: $311 = [(6 × $305) + (3 × $310) + (3 × $316) + (4 × $317)] ÷ (6 + 3 + 3 + 4) ME09: $534 = [(6 × $520) + (8 × $531) + (4 × $549) + (6 × $542)] ÷ (6 + 8 + 4 + 6) NM57: $227 = [(4 × $222) + (4 × $232)] ÷ (4 + 4) TN33: $37 = [(4 × $35) + (6 × $36) + (8 × $37) + (7 × $39)] ÷ (4 + 6 + 8 + 7)
