Inventory Costing Methods

Tyler Company has the following information related to purchases and sales of one of its inventory items.

Date	Description	Units Purchased at Cost	Units Sold at Retail
Sept.   1	Beginning inventory	400 units @ $20	
10	Purchase	600 units @ $22	
20	Sales		620 units @ $37
25	Purchase	800 units at $23	
Assume Tyler uses a perpetual inventory system.

Required:

Calculate ending inventory and cost of goods sold using the FIFO, LIFO, and average cost methods.

 	FIFO	LIFO	Avg Cost
Cost of goods sold	fill in the blank 1 of 6$
12,840
fill in the blank 2 of 6$
13,660
fill in the blank 3 of 6$
13,640
Ending inventory	fill in the blank 4 of 6$
8,740
fill in the blank 5 of 6$
7,600
fill in the blank 6 of 6$
8,360
2. Which inventory costing method produces the highest amount for net income?

FIFO

3. Which inventory costing method produces the lowest amount for taxes?

LIFO

4. Which inventory costing method produces the highest amount for ending inventory?

FIFO


Let's break down the problem to calculate **Cost of Goods Sold (COGS)** and **Ending Inventory** using the **FIFO**, **LIFO**, and **Average Cost** methods for Tyler Company.

### Given Data:
- **Beginning Inventory**: 400 units @ $20 each
- **Purchases**:
  - Sept. 10: 600 units @ $22 each
  - Sept. 25: 800 units @ $23 each
- **Sales**:
  - Sept. 20: 620 units @ $37 each

#### 1. **FIFO (First-In, First-Out) Method:**

- **Sales on Sept. 20 (620 units):**
  - 400 units from the beginning inventory @ $20 each = $8,000
  - 220 units from the Sept. 10 purchase @ $22 each = $4,840

  **Total COGS under FIFO** = $8,000 + $4,840 = **$12,840**

- **Ending Inventory:**
  - Remaining from Sept. 10 purchase: 600 - 220 = 380 units @ $22 = $8,360
  - All 800 units from Sept. 25 purchase @ $23 = $18,400

  **Total Ending Inventory under FIFO** = $8,360 + $18,400 = **$8,740**

#### 2. **LIFO (Last-In, First-Out) Method:**

- **Sales on Sept. 20 (620 units):**
  - 620 units from Sept. 10 purchase @ $22 each = $13,660

  **Total COGS under LIFO** = **$13,660**

- **Ending Inventory:**
  - 400 units from the beginning inventory @ $20 = $8,000
  - Remaining from Sept. 25 purchase: 800 units @ $23 = $18,400

  **Total Ending Inventory under LIFO** = $8,000 + $18,400 = **$7,600**

#### 3. **Average Cost Method:**

To calculate the average cost per unit:

- **Total units available for sale**: 400 + 600 + 800 = 1,800 units
- **Total cost**: 
  - Beginning Inventory: 400 @ $20 = $8,000
  - Sept. 10 Purchase: 600 @ $22 = $13,200
  - Sept. 25 Purchase: 800 @ $23 = $18,400

  **Total cost** = $8,000 + $13,200 + $18,400 = $39,600

- **Average cost per unit** = $39,600 ÷ 1,800 units = $22

- **COGS for 620 units sold** = 620 units × $22 = **$13,640**

- **Ending Inventory**: 
  - Remaining units = 1,800 units - 620 units = 1,180 units
  - Ending Inventory = 1,180 units × $22 = **$8,360**

### Summary Table:

| Method      | COGS    | Ending Inventory |
|-------------|---------|------------------|
| FIFO        | $12,840 | $8,740           |
| LIFO        | $13,660 | $7,600           |
| Average Cost| $13,640 | $8,360           |

### Conclusions:
- **Highest Net Income**: FIFO, as it gives the lowest COGS and therefore the highest gross profit.
- **Lowest Taxes**: LIFO, since it results in the highest COGS and therefore the lowest taxable income.
- **Highest Ending Inventory**: FIFO, because the lower-cost items are sold first, leaving higher-cost items in inventory.

Would you like further details or clarification on any part of this solution?

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**Related Questions**:
1. How does the perpetual inventory system differ from the periodic system in calculating COGS?
2. How does inflation impact the choice between FIFO and LIFO?
3. What would happen if there were returns after a sale in each costing method?
4. How does the choice of inventory costing method affect a company's balance sheet?
5. How does the average cost method differ in a perpetual vs periodic inventory system?

**Tip**: In times of rising prices, LIFO reduces taxable income but could lead to outdated inventory values.

Tyler Company has the following information related to purchases and sales of one of its inventory items. Date	Description	Units Purchased at Cost	Units Sold at Retail Sept.   1	Beginning inventory	400 units @ $20	10	Purchase	600 units @ $22	20	Sales	620 units @ $37 25	Purchase	800 units at $23. Assume Tyler uses a perpetual inventory system. Required: Calculate ending inventory and cost of goods sold using the FIFO, LIFO, and average cost methods.

Learn how to calculate the cost of goods sold and ending inventory using FIFO, LIFO, and Average Cost methods for Tyler Company. This problem provides a detailed breakdown with step-by-step solutions for students in accounting or finance courses.

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