Rogers Products uses a periodic inventory system. The company’s records show the beginning inventory of PH4 oil filters on January 1 and the purchases of this item during the current year to be as follows. Jan. 1 Beginning inventory 11 units @ $ 3.00 $ 33.00 Feb. 23 Purchase 18 units @ $ 3.50 63.00 Apr. 20 Purchase 28 units @ $ 3.80 106.40 May 4 Purchase 37 units @ $ 4.00 148.00 Nov. 30 Purchase 20 units @ $ 5.00 100.00 Totals 114 units $ 450.40 A physical count indicates 25 units in inventory at year-end. Determine the cost of the ending inventory on the basis of each of the following methods of inventory valuation. a. Average cost. b. FIFO. c. LIFO.

a. Ending inventory value by average method is $ 98.77

b. Ending inventory value by FIFO method is $ 120

c. Ending inventory value by LIFO method is $ 82

Explanation:

Following are three types of Inventory valuation method.

1 ) Average Method : It is calculated by dividing total cost of inventory purchased divided by total units purchased.

In Periodic Inventory system,

Weighted average unit cost = Total cost of materials purchased / Total no.of units purchased.

Given data

Beginning inventory = 11 units

Date                                units             Unit Cost             Total Cost

Beginning inventory         11                      3                         33

Feb-23                               18                    3.5                       63

Apr-20                               28                    3.8                      106.40

May -04                              37                     4                         148

Nov-30                               20                     5                         100        

Total                                   114                                               450.4

Weighted average unit cost = 450.4 / 114 = 3.95

Ending inventory contains 25 units = 25 x 3.95 = 98.77

2) FIFO: FIFO means First in First out. In this type of inventory valuation method, ending inventory is composed of most recently purchased items.

Ending inventory by FIFO method is = (20 x 5) + (5 x 4) = 120.

3) LIFO: LIFO means Last in First out. In this type of inventory valuation method, most recently purchased items or units are issued to the production.

Ending inventory by LIFO method is = (11 x 3) + (14 x 3.5) = 82.

During inflation, FIFO results higher income as the lowest cost items are issued to the production and results higher inventory.    

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