Transactions Units Amount Inventory, January 1 600 $1800
Purchase, January 12 580 2900
Purchase, January 26 180 1260
Sale (460)
Sale (460)

Required:
a. Compute Cost of Goods Sold under each method of inventory: average cost, FIFO, LIFO, and specific identification. For specific identification, assume that the first sale was selected from the beginning inventory and the second sale was selected from the January 12 purchase. Assume that the company uses periodic inventory system.

b. Prepare a partial income statement under each method of inventory: (a) average cost, (b) FIFO, (c) LIFO, and (d) specific identification. For specific identification, assume that the first sale was selected from the beginning inventory and the second sale was selected from the January 12 purchase Assume that the company uses periodic inventory system.

a) Cost of Goods Sold under each method of inventory:

1) Average Cost:

Beginning Inventory  600 units   $1,800

Purchases: January 12, 580 units 2,900

Purchases: January 26, 180 units  1,260

Cost of goods available for sale, 1,360 units $5,960

Less ending Inventory, 440 units   $1,927.20

Cost of goods sold, 920 units     $4,032.80

a2) FIFO:

Beginning Inventory  600 units   $1,800

Purchases: January 12, 580 units 2,900

Purchases: January 26, 180 units  1,260

Cost of goods available for sale, 1,360 units $5,960

Less ending Inventory, 440 units   $2,560

Cost of goods sold, 920 units     $3,400

a3) LIFO

Beginning Inventory  600 units   $1,800

Purchases: January 12, 580 units 2,900

Purchases: January 26, 180 units  1,260

Cost of goods available for sale, 1,360 units $5,960

Less ending Inventory, 440 units   $1,320

Cost of goods sold, 920 units     $4,640

a4) Specific Identification:

Beginning Inventory  600 units   $1,800

Purchases: January 12, 580 units 2,900

Purchases: January 26, 180 units  1,260

Cost of goods available for sale, 1,360 units $5,960

Less ending Inventory, 440 units   $2,280

Cost of goods sold, 920 units     $3,680

B. Partial Income Statement under:

                                  Average cost   FIFO    LIFO     Specific Identification

Beginning Inventory      $1,800        $1,800    $1,800          $1,800

Purchases                        4,160          4,160       4,160            4,160

Cost of goods for sale $5,960       $5,960   $5,960        $5,960

Less ending Inventory    1,927.20    2,560       1,320          2,280

Cost of goods sold     $4,032.80  $3,400   $4,640       $3,680

Explanation:

a) The average cost per unit under Average Method =

Average cost per unit =$4.38 (5,960/1,360)

Ending Inventory, 440 x $4.38 = $1,927.20

b) Ending Inventory under FIFO: 440 units

Cost of 180 units = $1,260

Cost of 260 units =  1,300 (260 x $5)

Total cost = $2,560

c) Ending Inventory under LIFO: 440 units

Cost of 440 units from beginning inventory = 440 x $3 = $1,320

d) Ending Inventory under Specific Identification: 440 units

Remaining opening inventory 140 units at $3 = $420

Remaining Jan 12, 120 units at $5 = $600

Remaining Jan 26, 180 units at $7 = $1,260

Total cost of ending inventory = $2,280

e) These are various inventory costing methods which present different results in their cost of goods sold and the ending inventory.