# 10 consists of the units on hand january 1 and the

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10 consists of the units on hand January 1 and the units purchased April 15 and August 24. Illustration 6A-2 shows the inventory under a FIFO method perpetual system. Balance Date Purchases Cost of Goods Sold (in units and cost) January 1 (100 @ \$10) \$ 1,000 April 15 (200 @ \$11) \$2,200 (100 @ \$10) (200 @ \$11) \$ 3,200 August 24 (300 @ \$12) \$3,600 (100 @ \$10) (200 @ \$11) \$ 6,800 (300 @ \$12) September 10 (100 @ \$10) (200 @ \$11) (250 @ \$12) ( 50 @ \$12) \$ 600 \$6,200 November 27 (400 @ \$13) \$5,200 ( 50 @ \$12) \$5,800 (400 @ \$13) Illustration 6A-2 Perpetual system—FIFO Cost of goods sold The ending inventory in this situation is \$5,800, and the cost of goods sold is \$6,200 [(100 @ \$10) H11001 (200 @ \$11) H11001 (250 @ \$12)]. Compare Illustrations 6-5 (page 256) and 6A-2.You can see that the results un- der FIFO in a perpetual system are the same as in a periodic system . In both cases, the ending inventory is \$5,800 and cost of goods sold is \$6,200. Regardless of the system, the first costs in are the costs assigned to cost of goods sold. Ending inventory PDF Watermark Remover DEMO : Purchase from to remove the watermark

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272 Chapter 6 Inventories Last-In, First-Out (LIFO) Under the LIFO method using a perpetual system, the company charges to cost of goods sold the cost of the most recent purchase prior to sale.Therefore, the cost of the goods sold on September 10 consists of all the units from the August 24 and April 15 purchases plus 50 of the units in beginning inventory. Illustration 6A-3 shows the computation of the ending inventory under the LIFO method. Balance Date Purchases Cost of Goods Sold (in units and cost) January 1 (100 @ \$10) \$1,000 April 15 (200 @ \$11) \$2,200 (100 @ \$10) \$3,200 (200 @ \$11) August 24 (300 @ \$12) \$3,600 (100 @ \$10) (200 @ \$11) (300 @ \$12) \$6,800 September 10 (300 @ \$12) (200 @ \$11) ( 50 @ \$10) (50 @ \$10) \$ 500 \$6,300 November 27 (400 @ \$13) \$5,200 (50 @ \$10) \$5,700 (400 @ \$13) Illustration 6A-3 Perpetual system—LIFO Cost of goods sold Ending inventory The use of LIFO in a perpetual system will usually produce cost allocations that differ from those using LIFO in a periodic system. In a perpetual system, the company allocates the latest units purchased prior to each sale to cost of goods sold. In contrast, in a periodic system, the latest units purchased during the period are allocated to cost of goods sold.Thus, when a purchase is made after the last sale, the LIFO periodic system will apply this purchase to the previous sale. Compare Illustrations 6-7 (page 257) and 6A-3. Illustration 6-7 shows that the 400 units at \$13 purchased on November 27 applied to the sale of 550 units on September 10. Under the LIFO perpetual system in Illustration 6A-3, the 400 units at \$13 pur- chased on November 27 are all applied to the ending inventory. The ending inventory in this LIFO perpetual illustration is \$5,700, and cost of goods sold is \$6,300, as compared to the LIFO periodic illustration (on page 257) where the ending inventory is \$5,000 and cost of goods sold is \$7,000.
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