Unit 3 Section 5 Question 57: Answers

In the solution shown below, the full workings of each transaction are shown but it is only the figures
in bold that would be shown on the inventory record cards.

FIFO

Receipts Issues Balance

Date Qty Cost/kg Cost Qty Cost/kg Cost Qty Cost
kg £ £ kg £ £ kg £
1 Jan 5,000 7,500

5 Jan 2,000 1.60 3,200 2,000 3,200

7,000 10,700
11 Jan 5,000 1.50 7,500
1,000 1.60 1,600
6,000 9,100 (6,000) (9,100)
1,000 1,600
17 Jan 4,000 1.70 6,800 4,000 6,800
5,000 8,400
24 Jan 1,000 1.60 1,600
3,000 1.70 5,100
4,000 6,700 (4,000) (6,700)
1,000 1,700

LIFO

Receipts Issues Balance

Date Qty Cost/kg Cost Qty Cost/kg Cost Qty Cost
kg £ £ kg £ £ kg £
5,000 7,500
1 Jan

5 Jan 2,000 1.60 3,200 2,000 3,200

7,000 10,700
11 Jan 2,000 1.60 3,200
4,000 1.50 6,000
6,000 9,200 (6,000) (9,200)
1,000 1,500
17 Jan 4,000 1.70 6,800 4,000 6,800
5,000 8,300
24 Jan 4,000 1.70 6,800
4,000 6,800 (4,000) (6,800)
1,000 1,500
AVCO

Receipts Issues Balance

Date Qty Cost/kg Cost Qty Cost/kg Cost Qty Cost
kg £ £ kg £ £ Kg £
1 Jan 5,000 7,500

5 Jan 2,000 1.60 3,200 2,000 3,200

7,000 10,700

11 Jan £10,700/7,000
6,000 = 1.529 9,174 (6,000) (9,174)
1,000 1,526
17 Jan 4,000 1.70 6,800 4,000 6,800
5,000 8,326
24 Jan £8,326/5,000
4,000 = 1.665 6,660 (4,000) (6,660)
1,000 1,666

Summary of results
Under FIFO, closing inventory is 1,000 kg with a total value of £1,700. This is valuing the closing
inventory at £1.70 per kg which is the most recent purchase price, since under FIFO it is assumed
that the oldest units are issued first and the newest ones remain in inventory.
Under LIFO, closing inventory is 1,000 kg with a total value of £1,500. This is £1.50 per kg which is
valuing the closing inventory at the oldest purchase price, since under LIFO it is assumed that the
newest units are issued first and the oldest ones remain in inventory.
Under AVCO, the closing inventory is 1,000 kg with a total value of £1,666. This value lies between
the FIFO and LIFO values of £1,700 and £1,500.