Questions:
During the past two years 2022 and 2023, a semiconductor distributor made the following purchases and sales:

In 2022, it purchased an inventory of 121,500 wafers at a cost of $10.67 per wafer and sold 112,650 units at a price of $13.99 per wafer. In 2023, it bought 284,800 units at a cost of $8.23 per wafer and sold 274,580 units for $11.59 per wafer.

What would be the inventory turnover ratio in 2023 using the FIFO and LIFO methods?

Would the using the Weighted Average method lead to a higher or lower inventory turnover ratio compared to the FIFO method?

Reference answers:
First, let's recap the data given in the question.

| Year | Purchases |             | Sales  |          |
|-----------|---------------|-------------|------------|----------|
|           | Units     | Cost    | Units  | Price |
| 2022  | 121,500.00    | 10.67       | 121,500.00 | 13.99    |
| 2023  | 284,800.00    | 8.23        | 274,580.00 | 11.59    |

We need to find the inventory valuation method used in order to recieve an inventory turnover valuation of 12.66. Inventory Turnover is defined as the Cost of Goods Sold / Year-End Inventory Balance.

At the end of 2022, we have 121,500.00 - 121,500.00 = 8,850 units left over. In 2023, we add 284,800 more units, bringing the total up to 284,800 + 8,850 = 293,650. We then sold 274,580 of those units to reduce inventory to 19,070. 

# First in first out (FIFO)

Using the FIFO method, we would value the 274,580 units sold in 2023 as 8,850 of the units from 2022 at $10.97 and then 274,580 - 8,850 = 265,730 at 8.23. The cost of goods sold would then be,

265,730 * 8.23 + 8,850 * 10.67 = 2,281,387.40

The remaining 19,070 would be valued at 8.23, meaning our remaining inventory balance would be

19,070 * 8.23 = 156,946.10

This would give us an inventory turnover of

2,281,387.40 / 156,946.10 = 14.54

# Last in first out (LIFO)

Using the FIFO method, we would value the 274,580 units sold in 2023 as being from 2023. Of the 19,070 left over, 8,850 of those would be valued using the value from 2022 and 19,070 - 8,850 = 10,220. The cost of goods sold would then be,

274,580 * 8.23  = 2,259,793.40

The ending inventory balance would then be

10,220 * 8.23 + 8,850 * 10.67 = 178,540.10 

This would give us an inventory turnover of,

2,259,793.40 / 178,540.1 = 12.66

# Weighted average

Using the weighted average method, we would evaluate each unit as having the weighted average cost across the entire inventory. Since we had 8,850 at 10.67 and 284,800 at 8.23, this value would be

10.67 * 8,850 / (8,850 + 284,800) + 8.23 * 284,800 / (8,850 + 284,800) = 8.30

The cost of goods sold would then be,

274,580 * 8.30  = 2,279,014

The ending inventory balance would then be

19,070 * 8.30 = 158281

This would give us an inventory turnover of,
 
2,279,014 / 158,281 = 14.40

Therefore, the weighted average method would lead to a slightly lower turnover ratio compared to the FIFO method (14.54).