Question

prepare a store ledger account showing the receipts and the issues of material A for may 2021 pricing the material issued by weighted average method receipts 1-5-2021 4000 units 20
18-5-2021 6000 units 18
30-5-2021 2000 units 16
issues
4-5-2021 2000 units
10-5-2021 1000 units
22-5-2021 5000 units
31-5-2021 2000 units​

Answer 1

Answer:

The first in, first out (FIFO) accounting method relies on a cost flow assumption that removes costs from the inventory account when an item in someone’s inventory has been purchased at varying costs, over time. When a business uses FIFO, the oldest cost of an item in an inventory will be removed first when one of those items is sold. This oldest cost will then be reported on the income statement as part of the cost of goods sold.

Last In, First Out (LIFO)

The last in, first out (LIFO) accounting method assumes that the latest items bought are the first items to be sold. With this accounting technique, the costs of the oldest products will be reported as inventory. It should be understood that, although LIFO matches the most recent costs with sales on the income statement, the flow of costs does not necessarily have to match the flow of the physical units.

Generally speaking, FIFO is preferable in times of rising prices, so that the costs recorded are low, and income is higher. Contrarily, LIFO is preferable in economic climates when tax rates are high because the costs assigned will be higher and income will be lower.

Weighted Average vs. FIFO vs. LIFO Example

Consider this example: Suppose you own a furniture store and you purchase 200 chairs for $10 per unit. The next month, you buy another 300 chairs for $20 per unit. At the end of an accounting period, let's assume you sold 100 total chairs. The weighted average costs, using both FIFO and LIFO considerations are as follows:

200 chairs at $10 per chair = $2,000. 300 chairs at $20 per chair = $6,000

Total number of chairs = 500

Weighted Average Cost

Cost of a chair: $8,000 divided by 500 = $16/chair

Cost of Goods Sold: $16 x 100 = $1,600

Remaining Inventory: $16 x 400 = $6,400

First In, First Out Cost

Cost of goods sold: 100 chairs sold x $10 = $1,000

Remaining Inventory: (100 chairs x $10) + (300 chairs x $20) = $7,000

Last In, First Out Cost

Cost of goods sold: 100 chairs sold x $20 = $2,000

Remaining Inventory: (200 chairs x $10) + (200 chairs x $20) = $6,000

Explanation:

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