Running Head: LIFO, FIFO AND WAC UNDER PERIODIC SYSTEM 1

An Assignment Based on

LIFO, FIFO and WAC under Periodic System

LC00016000024

Nepal Business College.

Biratnagar-15
LIFO, FIFO AND WAC UNDER PERIODIC SYSTEM 2

Q. Inventory costing methods: Periodic System

Story Company’s inventory records for the month of November reveal the
followings:

Inventory, Nov. 1 300 units @$27

Nov. 4, Purchase 375 units @$26.50

Nov. 7, Sales 450 units @$63

Nov. 13, purchase 330 units @$26

Nov. 18, Purchase 225 units @$25.40

Nov. 22, Sale 570 units @$63.75

Nov.24, Purchase 330 units @$25

Nov. 28, sale 165 units @$64.50

Selling and administrative expenses for the month were $16,200. A

depreciation expense was $6,000. Story’s tax rate is 35%

Required:

1. Compute Cost of Goods Sold (COGS) and the ending inventory under
each of the following three methods assuming a periodic inventory
system:
a. FIFO b. LIFO and c. Weighted average method (WAC)
2. Calculate the gross profit and net income under each costing
assumption.
3. Under which costing method will story pay least taxes? Explain your
answers.

Solution: Required: 1
LIFO, FIFO AND WAC UNDER PERIODIC SYSTEM 3

a. Under FIFO methods:

1. Cost of goods sold as:

Units of Sales Rate ($ ) Amount ( $ )

300 27 8100
375 26.50 9937.50
330 26 8580
180 25.40 4572
31,189.50

2. Value of Inventories

Units unsold Rate $ Amount $

45 25.40 1,143
300 25 7,500
8,643

b. Under LIFO methods:

1. Cost of goods sold as:

Units of sales Rate $ Amount $

300 25 7,500
225 25.40 5,715
330 26 8,580
330 26.50 8,745
30,540

2. Value of Inventories

Units unsold Rate $ Amount $

45 26.50 1192.50
300 27 8100
9292.50
LIFO, FIFO AND WAC UNDER PERIODIC SYSTEM 4

c. Now, calculation of Inventory and COGS under WAC methods:

WAC= Cost of goods available for sales / No. of units available for sales
= 8,100 + 31,732.50 / 1,530
= 26.03 per unit

Cost of goods sold = Units sold * WAC per unit

= 1,185 * 26.03 Per unit
= $ 30,845.55

Value of Inventory = Units of ending Inventory * WAC/ unit

= 345 * $26.03
= $8,980.35
Therefore,
I. FIFO methods
a. COGS= $ 31,189.50
b. Value of Inventory= $ 8,643

II. LIFO methods:

a. COGS= $ 30,540
b. Value of Inventory = $ 9292.50

III. WAC methods:

a. COGS = $30,845.55
b. Value of Inventory= $ 8,980.36
c.
 Solution:
Income Statement
For the year Ended

Particulars WAC FIFO LIFO

Sales revenue 75,330 75,330 75,330
Less: Cost of (30,845.55) (31,189.50) (30,540)
goods sold
Gross profit 44,484.45 44,140.50 44,790
Less: operating (16,200) (16,200) (16,200)
expenses.
Depreciation (6,000) (6,000) (6,000)
Earnings before $22,284.45 $21,940.50 $22,590
LIFO, FIFO AND WAC UNDER PERIODIC SYSTEM 5

Interest and tax

Less: Interest - - -
Earnings before $22,284.45 $ 21,940.50 $ 22,590
tax
Less: Tax@ (7,799.56) (7,679.18) (7,906.50)
35%
Net income or $ 14,484.89 $ 14,261.32 $ 14,683.50
earnings after
tax

 Solution:
From the above calculation we get,

IV. FIFO methods

c. COGS= $ 31,189.50
d. Value of Inventory= $ 8,643

V. LIFO methods:
c. COGS= $ 30,540
d. Value of Inventory = $ 9292.50

VI. WAC methods:

d. COGS = $30,845.55
e. Value of Inventory= $ 8,980.36

The cost of goods sold under FIFO methods is the maximum i.e.
$31,189.50 in compare to the WAC method and LIFO method. So,
under FIFO method, it has been found that the profit is least. In
addition, using the FIFO method, the Story would pay at least tax
because of least profit and high cost.