1. Lester Company sells many products. Hackenberry is one of its popular items.

Below is
an analysis of the inventory purchases and sales of Hackenberry for the month of March.
Lester Company uses the periodic inventory system.
Purchases Sales
Units Unit Cost Units Selling
Price/Unit
3/1 Beginning inventory 100 $40
3/3 Purchase 60 $50
3/4 Sales 70 $80
3/10 Purchase 200 $55
3/16 Sales 80 $90
3/19 Sales 60 $90
3/25 Sales 40 $90
3/30 Purchase 40 $65
Instructions
(a) Using the FIFO assumption, calculate the amount charged to cost of goods sold for
March. (Show computations)
(b) Using the weighted average method, calculate the amount assigned to the inventory on
hand on March 31. (Show computations)
(c) Using the LIFO assumption, calculate the amount assigned to the inventory on hand on
March 31. (Show computations)

2. Your former college roommate is opening a new retail store and asks you “Which
inventory costing method should I use?”

What is your response? Include a comparison of the tax effect, balance sheet effect, and
income statement effect for FIFO versus LIFO.

Answer :
1.
(a) Using the FIFO assumption, calculate the amount charged to cost of goods sold for
March
3/1 100 @ $40 $ 4,000
3/3 @ $50 $ 3,000
60
3/10 110 @ $55 $ 6,050
Unit 270
The Cost $13,050
of Goods
sold

(b) Calculate the amount assigned to the inventory on hand on March 31

$20,400/400 = $51
$51*Unit ending Inventory (400 Avalaible less 270 Sold=130)
$51*130=$6,630

(c) There are 130 Units in ending inventory. They are comprised of the first purchased
when LIFO is Assumed.
3/1 100 @ $40 $4,000
3/3 30 @ $50 $ 1,500
Unit 130
Ending $ 5,500
Inventory
2. I suggest to consider one of the three cost flow assumptions—Average, First-In, First-
Out(FIFO), or Last-In, First-Out (LIFO). These methods are based on the assumption of cost
flowsinstead of the actual physical flow of goods.