Hi Luke!
The good news is that you've already figured out the moving-average costs, which is a big part of the problem! Now we just need to determine which inventory units are left at the end of July and how much they're worth.
Let's work through each method.
First, let's calculate how many units remain in inventory.
Total units purchased:
July 1: 45 units
July 11: 63 units
July 21: 72 units
Total purchased = 180 units
Total units sold:
July 6: 27 units
July 14: 45 units
July 27: 45 units
Total sold = 117 units
Ending inventory = 180 - 117 = 63 units
So regardless of which inventory method we use, we finish July with 63 units. The difference is how we assign costs to those units.
- FIFO (First In, First Out)
FIFO assumes the oldest inventory is sold first. That means the newest inventory remains at the end.
Let's follow the transactions:
July 1: Purchase 45 units at $122.
July 6: Sell 27 units, leaving 18 units at $122.
July 11: Purchase 63 units at $136.
July 14: Sell 45 units. We sell the remaining 18 units at $122 first, followed by 27 units at $136.
That leaves 36 units at $136.
July 21: Purchase 72 units at $147.
July 27: Sell 45 units. We sell the remaining 36 units at $136, followed by 9 units at $147.
That leaves 63 units at $147.
Ending FIFO inventory:
63 × $147 = $9,261
FIFO ending inventory = $9,261
- LIFO (Last In, First Out)
LIFO assumes the newest inventory is sold first. Because this is a perpetual inventory system, we apply LIFO separately whenever a sale occurs.
July 1: Purchase 45 units at $122.
July 6: Sell 27 units at $122.
Remaining: 18 units at $122.
July 11: Purchase 63 units at $136.
July 14: Sell 45 units from the newest purchase at $136.
Remaining inventory:
18 units at $122
18 units at $136
July 21: Purchase 72 units at $147.
July 27: Sell 45 units from the newest purchase at $147.
Remaining inventory:
18 units at $122
18 units at $136
27 units at $147
Now calculate the value:
18 × $122 = $2,196
18 × $136 = $2,448
27 × $147 = $3,969
Total = $8,613
LIFO ending inventory = $8,613
- Moving-Average Cost
This method calculates a new average cost per unit whenever inventory is purchased.
You already calculated the average costs correctly, so we can use those to finish the problem.
After the July 21 purchase, the moving-average cost is approximately $142.30 per unit.
On July 27, the company sells 45 units. Since there are no additional purchases afterward, the remaining 63 units retain that same average cost.
Ending inventory:
63 × $142.30 = $8,964.90
Rounded to the nearest dollar:
Moving-average ending inventory = $8,965
FINAL ANSWERS:
LIFO: $8,613
Moving-Average: $8,965
FIFO: $9,261
Here's a helpful way to remember the difference for your test:
FIFO: The oldest costs leave first, so the newest costs remain in inventory.
LIFO: The newest costs leave first, so older costs tend to remain in inventory.
Moving Average: All remaining units are assigned the same average cost, which is recalculated after each purchase.
One last thing to remember: Because purchase prices increased throughout July, FIFO produces the highest ending inventory value, while LIFO produces the lowest.
You're already doing well with the average-cost calculations. Once you get comfortable tracking which units remain after each sale, these problems become much easier!
