At the beginning of the current period, Chen carried 1,000 units of its product with a unit cost of $10. A summary of purchases during the current period follows. During the period, Chen sold 2,800 units.

Units Unit Cost Cost
Beginning Inventory 1,000 $ 10 $ 10,000
Purchase #1 1,800 11 19,800
Purchase #2 800 13 10,400
Purchase #3 1,200 15 18,000

(a) Assume that Chen uses the first-in, first-out method. Compute both cost of good sold for the current period and the ending inventory balance. Use the financial statement effects template to record cost of goods sold for the period.
(b) Assume that Chen uses the last-in, first-out method. Compute both cost of good sold for the current period and the ending inventory balance.

a) FIFO (First-In-First-Out) is a method of inventory valuation where the inventory that is received first is used first. In other words, oldest stock is used first. This is common for perishables which if stocked for too long, will be wasted.

Cost of goods sold under FIFO :

1,000 units x $10 = $10,000

1,800 units x $11 = $19,800

COGS : $10,000 + $19,800 = $29,800 (2800 units)

Ending Inventory :

800 units x $13 = $10,400

1200 units x $15 = $18,000

Ending inventory = $10,400 + $18,000 = $28,400 (2000 units)

Financial statement effects template shown in the attachment...

b) LIFO (Last-In-First-Out) is a method of inventory valuation where the inventory that is purchased last is used first. In other words, newest inventory is used first. This is common for bulky stock stacked one on top of the other.

Cost of goods sold under LIFO :

1200 units x $15 = $18,000

800 units x $13 = $10,400

800 units x $11 = $8,800

COGS : $18,000 + $10,400 + $8,800 = $37,200 (2800 units)

Ending inventory:

1000 units x $10 = $10,000

(1800 units - 800 units) x $11 = $11,000

Ending inventory = $10,000 + $11,000 = $21,000 (2000 units)