Erie Jewelers sells gold earrings. Its beginning inventory of Model 407 gold earrings consisted of 100 pairs of earrings at $50 per pair. Erie purchased two batches of Model 407 earrings during the year. The first batch purchased consisted of 150 pairs at $53 per pair; the second batch consisted of 200 pairs at $56 per pair. During the year, Erie sold 375 pairs of Model 407 earrings.
Required
Determine the amount of product cost Erie would allocate to cost of goods sold and ending inventory assuming that Erie uses (a) FIFO, (b) LIFO, and (c) weighted average.
Solution to Requirements a–c
| Goods Available for Sale | Pairs | Cost per Pair | Total Cost |
| Beginning inventory | 100 | @ $50 | = $5,000 |
| First purchase | 150 | @ $53 | = $7,950 |
| Second purchase | 200 | @ $56 | = $11,200 |
| Total Goods Available for Sale | 450 | $24,150 |
a). FIFO
| Cost of Goods Sold | Pairs | Cost per Pair | Total Cost |
|---|---|---|---|
| From beginning inventory | 100 | @ $50 | = $5,000 |
| From first purchase | 150 | @ $53 | = $7,950 |
| From second purchase | 125 | @ $56 | = $7,000 |
| Total pairs sold | 375 | $19,950 |
Ending inventory = Goods available for sale − Cost of goods sold
Ending inventory = $24,150 − $19,950 = $4,200
b). LIFO
| Cost of Goods Sold | Pairs | Cost per Pair | Total Cost |
|---|---|---|---|
| From second purchase | 200 | @ $56 | = $11,200 |
| From first purchase | 150 | @ $53 | = $7,950 |
| From beginning inventory | 25 | @ $50 | = $1,250 |
| Total pairs sold | 375 | $20,400 |
Ending inventory = Goods available for sale − Cost of goods sold
Ending inventory = $24,150 − $20,400 = $3,750
c). Weighted average
Goods available for sale ÷ Total pairs = Cost per pair
$24,150 ÷ 450 = $53.6667
Cost of goods sold 375 units @ $53.6667 = $20,125
Ending inventory 75 units @ $53.6667 = $4,025
Senior lecturer at University. 12+ years tutoring algebra and calculus..