T-shirt City uses a periodic inventory system. During the first year of operations, the company made four purchases of a particular product. Each purchase was for 500 units and the prices paid were $9 per unit in the first purchase, $10 per unit in the second purchase, $12 per unit in the third purchase, and $13 per unit in the fourth purchase. At the year-end, 650 of these units remained unsold. Compute the cost of goods sold under the FIFO method and LIFO method, respectively.

Explanation

Step 1: Calculate Total Cost of Purchases

• 500 units @ $9 = $4,500
• 500 units @ $10 = $5,000
• 500 units @ $12 = $6,000
• 500 units @ $13 = $6,500
• Total units purchased = 2,000 units
• Total cost of inventory = $22,000

Step 2: Identify Sold and Unsold Units

• Total purchased: 2,000 units
• Ending inventory: 650 units
• COGS = Total purchased - Ending inventory
• COGS = 2,000 - 650 = 1,350 units sold

Step 3: FIFO Method (First-In, First-Out)

FIFO means the oldest costs are used for COGS:

1. 500 units @ $9 = $4,500
2. 500 units @ $10 = $5,000
3. 350 units @ $12 = $4,200
   Total FIFO COGS = $13,700

Step 4: LIFO Method (Last-In, First-Out)

LIFO means the most recent costs are used for COGS:

1. 500 units @ $13 = $6,500
2. 500 units @ $12 = $6,000
3. 350 units @ $10 = $3,500
   Total LIFO COGS = $16,000

Final Answer:

COGS under FIFO = $13,700
COGS under LIFO = $16,000

Related MCQs