Arrow Company is a retailer that uses the perpetual inventory system.

August 1 Beginning inventory 80 units of Product A @ $1,600 total cost
5 Purchased 100 units of Product A @ $2,116 total cost
8 Purchased 200 units of Product A @ $4,416 total cost
11 Sold 170 units of Product A @ $4,800 total sale
Calculate the inventory cost of item A on August 11 (after the sale) using (a) first-in, first-out, (b) last-in, first-out, and (c) the weighted-average cost methods.

Do not round until your final answers. Round your final answers to the nearest dollar.

a, Inventory cost under First in first out- FIFO = $ 4,628

b. Inventory cost under Last in First Out LIFO = $ 4,378

c. Inventory cost under Weighted average cost = $ 4,494

Explanation:

The data need to be summarised

                                                    Units      Per Unit Cost           Total value

August 1 Opening inventory          80                                           $ 1,600

August 5 Purchases                      100                                           $ 2,116

August 11 Purchases                      200                                         $ 4,416

Weighted average cost                  380           $ 21.4                   $  8,132

August 11 Sales                               (170)

Units in hand after Aug 11 sales    210        

Computation on inventory cost under FIFO method

Under FIFO method the cost of goods sold are considered from the opening inventory and the first purchases. The inventory on hand is from the last purchases.

The inventory on hand of 210 units, of which 200 units are from August 11 and 10 units from the purchases of August 5.

The average unit cost of Aug 11 purchases is $ 4,416/ 200 units = $ 22.08

The average unit cost of Aug 05 purchases is $ 2,116 /100 units = $ 21.16

200 units * $ 22.08   = $ 4,416.00

10 units * $ 21.16        = $     211.60

                                      $ 4627.60 say $ 4,628

Computation on inventory cost under LIFO method

Under LIFO method the cost of goods sold are considered from the last purchases and the inventory on hand is from the opening inventory and first purchases.

The inventory on hand of 210 units is as follows

Opening inventory                                      80 units                    $ 1,600

Purchases August 5                                   100 units                   $  2,116

Purchases August 11                                    30 [email protected] $22.08   $      662.40

Inventory under LIFO Method                                                    $ 4,378.40

Computation on inventory cost under Weighted Average method

The weighted average cost of inventory is 210 units * $ 21.40   = $ 4,494

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