The records at the end of January of the current year for Young Company showed the following for a particular kind of merchandise:

The records at the end of January of the current year for Young Company showed the following for a particular kind of merchandise:

Beginning Inventory at FIFO: 17 Units @ $15 = $255

Beginning Inventory at LIFO: 17 Units @ $11 = $187

Transactions	Units	Unit Cost				Total Cost
Purchase, January 9	30	$	13			$	390
Purchase, January 20	51		18				918
Sale, January 21 (at $42 per unit)	36
Sale, January 27 (at $43 per unit)	30

Required:

1. Compute the inventory turnover ratio for the month of January under the FIFO and LIFO inventory costing methods. (Do not round intermediate calculations and round your final answers to 2 decimal places.)

Explanation:

1.

CASE A – FIFO:

Goods available for sale for FIFO:
Units (17 + 30 + 51)		98
Amount ($255 + 390 + 918)	$	1,563
Ending inventory: 98 units – 66 units = 32.
Ending inventory (32 units × $18)	$	576
Cost of goods sold [(17 Units @ $15) + (30 units @ $13) + (19 units @ $18)]	$	987

Inventory turnover	=	Cost of goods sold	=	$987	=	2.38
		Average inventory		($255 + $576)/2

CASE B – LIFO:

Goods available for sale for LIFO:
Units (17 + 30 + 51)		98
Units (17 + 30 + 51)	$	1,495
Ending inventory: 98 units – 66 units = 32.
Ending inventory (17 units × $11) + (15 units × $13)	$	382
Cost of goods sold [(51 units @ $18) + (15 units @ $13)]	$	1,113

Inventory turnover	=	Cost of goods sold	=	1,113	=	3.91
		Average inventory		($187 + $382)/2

2.

The FIFO inventory turnover ratio is normally thought to be a more accurate indicator when prices are changing because LIFO can include very old inventory prices in ending inventory balances.

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