Cortez Company sells chairs that are used at computer stations. Its beginning inventory of chairs was 60 units at $25 per unit. During the year, Cortez made two batch purchases of this chair. The first was a 158-unit purchase at $28 per unit; the second was a 196-unit purchase at $30 per unit. During the period, it sold 270 chairs. Required:
Determine the amount of product costs that would be allocated to cost of goods sold and ending inventory, assuming that Cortez uses
a. FIFO
b. LIFO
c. weighted average

a. FIFO - cost of goods sold is $7,484 while ending inventory $4,320

b. LIFO - cost of goods sold is $7,952 while ending inventory $3,852

c. Weighted average - cost of goods sold is $7,698.26 while ending inventory $4,105.74

Explanation:

Considering the first in first out FIFO, Last in first out LIFO and weighted average methods of accounting for inventory. Given that the beginning inventory of chairs was 60 units at $25 per unit.

Given that during the year, two batch purchases were made at 58-unit purchase at $28 per unit; the second was a 196-unit purchase at $30 per unit while 270 chairs were sold.

Using FIFO,

Total number of chairs available for sale before 270 was sold

= 60 + 158 + 196

= 414 chairs

The 60 units at the beginning will be sold first, then the 158 units and the remainder from the 196 units purchased

The cost of the 270 items sold

= 60 * $25 + 158 * $28 + 52 * $30

= $7,484

Ending inventory (remaining from the 196 units purchased last)

= (196 - 52) * $30

= 144 *$30

= $4,320

Using LIFO

The cost of the 270 items sold

= 196 * $30 + 74 * $28

= $7,952

Ending inventory (remaining from the 158 units purchased and the 60 units available from the beginning)

= (60 * $25) + (158 - 74) *$28

= $1500 + $2352

= $3,852

Using weighted average

Weighted average cost of each unit

= (60 * $25 + 158 * $28 + 196 * $30)/(60 + 158 + 196)

= $11804/414

= $28.51207729

If 270 units were sold, cost of goods sold

= 270 * $28.51207729

= $7,698.26

Value of ending inventory

= (414 - 270) * $28.51207729

= $4,105.74

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