Warnerwoods Company uses a perpetual inventory system. It entered into the following purchases and sales transactions for March. (For specific identification, the March 9 sale consisted of 80 units from beginning inventory and 340 units from the March 5 purchase; the March 29 sale consisted of 40 units from the March 18 purchase and 120 units from the March 25 purchase.)
Required
1. Compute cost of goods available for sale and the number of units available for sale.
2. Compute the number of units in ending inventory.
3. Compute the cost assigned to ending inventory using (a) FIFO, (b) LIFO, (c) weighted average, and
(d) specific identification. (Round all amounts to cents.)
4. Compute gross profit earned by the company for each of the four costing methods in part 3.
SOLUTION
1.
Date | Particulars | Number of units (A) | Cost per unit (B) | Total cost (A*B) |
Mar.1 | Beginning inventory | 100 | 50 | 5,000 |
Mar.5 | Purchases | 400 | 55 | 22,000 |
Mar.18 | Purchases | 120 | 60 | 7,200 |
Mar.25 | Purchases | 200 | 62 | 12,400 |
820 | 46,600 |
The total number of units available for sale is 820 units and the total cost is $46,600.
2. Ending inventory = Opening inventory + Purchases - Sales
= 100 units + 720 units - 580 units = 240 units
Total purchases = Purchases from March 5 + Purchases from March 18 + Purchases from March 25
= 400 + 120 + 200 = 720 units
Total sales = Sales unit on March 9 + Sales unit on March 29
= 420 + 160 = 580 units
Therefore, the number of units in the ending inventory is 240 units.
3a. Calculate the cost assigned to the ending inventory using the FIFO method-
Date | Activity | Purchases | Purchases | Purchases | Sales | Balance | Balance | Balance |
Units (A) | Price per unit (B) | Value (A*B) | Units (A) | Price per unit (B) | Value (A*B) | |||
Mar.1 | Opening balance | 100 | 50 | 5,000 | ||||
Mar.5 | Purchases | 400 | 55 | 22,000 | 100 | 50 | 5,000 | |
400 | 55 | 22,000 | ||||||
Mar.9 | 420 | 80 | 55 | 4,400 | ||||
Mar.18 | Purchases | 120 | 60 | 7,200 | 80 | 55 | 4,400 | |
120 | 60 | 7,200 | ||||||
Mar.25 | Purchases | 200 | 62 | 12,400 | 80 | 55 | 4,400 | |
120 | 60 | 7,200 | ||||||
200 | 62 | 12,400 | ||||||
Mar.29 | Sales | 160 | 40 | 60 | 2,400 | |||
200 | 62 | 12,400 | ||||||
720 | 580 | 14,800 |
Therefore, the ending inventory using the FIFO method is $14,800.
3b.
Calculate the cost assigned to the ending inventory using the LIFO method-
Date | Activity | Purchases | Purchases | Purchases | Sales | Balance | Balance | Balance |
Units (A) | Price per unit (B) | Value (A*B) | Units (A) | Price per unit (B) | Value (A*B) | |||
Mar.1 | Opening balance | 100 | 50 | 5,000 | ||||
Mar.5 | Purchases | 400 | 55 | 22,000 | 100 | 50 | 5,000 | |
400 | 55 | 22,000 | ||||||
Mar.9 | 420 | 80 | 50 | 4,000 | ||||
Mar.18 | Purchases | 120 | 60 | 7,200 | 80 | 50 | 4,000 | |
120 | 60 | 7,200 | ||||||
Mar.25 | Purchases | 200 | 62 | 12,400 | 80 | 50 | 4,000 | |
120 | 60 | 7,200 | ||||||
200 | 62 | 12,400 | ||||||
Mar.29 | Sales | 160 | 80 | 50 | 4,000 | |||
120 | 60 | 7,200 | ||||||
40 | 62 | 2,480 | ||||||
720 | 580 | 13,680 |
Therefore, the ending inventory using the LIFO method is $13,680
3c. Calculate the cost assigned to the ending inventory using the Weighted average method-
Date | Activity | Purchases | Purchases | Purchases | Sales | Sales | Sales | Balance | Balance | Balance |
Units (A) | Price per unit (B) | Value (A*B) | Units (A) | Price per unit (B) | Value (A*B) | Units (A) | Price per unit (B) | Value (A*B) | ||
Mar.1 | Opening balance | 100 | 50 | 5,000 | ||||||
Mar.5 | Purchases | 400 | 55 | 22,000 | 100 | 50 | 5,000 | |||
400 | 55 | 22,000 | ||||||||
500 | 54 (27,000/500) | 27,000 | ||||||||
Mar.9 | 420 | 54 | 22,680 | 80 | 54 | 4,320 | ||||
Mar.18 | Purchases | 120 | 60 | 7,200 | 80 | 54 | 4,320 | |||
120 | 60 | 7,200 | ||||||||
200 | 58 (11,520/200) | 11,520 | ||||||||
Marc.25 | Purchases | 200 | 62 | 12,400 | 200 | 58 | 11,520 | |||
200 | 62 | 12,400 | ||||||||
400 | 59.80 (23,920/400) | 23,920 | ||||||||
Mar.29 | Sales | 160 | 59.80 | 9,568 | 240 | 59.80 | 14,352 | |||
720 | 580 |
Therefore, the cost assigned to the ending inventory using the weighted average method is $14,352.
3d. Calculate the cost assigned to the ending inventory using specific identification method-
Date | Activity | Purchases | Purchases | Purchases | Sales | Sales | Sales | Balance | Balance | Balance |
Units (A) | Price per unit (B) | Value (A*B) | Units (A) | Price per unit (B) | Value (A*B) | Units (A) | Price per unit (B) | Value (A*B) | ||
Mar.1 | Opening balance | 100 | 50 | 5,000 | ||||||
Mar.5 | Purchases | 400 | 55 | 22,000 | 100 | 50 | 5,000 | |||
400 | 55 | 22,000 | ||||||||
500 | 27,000 | |||||||||
80 | 50 | 4,000 | 20 | 50 | 1,000 | |||||
340 | 55 | 18,700 | 60 | 55 | 3,300 | |||||
Mar.9 | Sales | 420 | 22,700 | 80 | 4,300 | |||||
Mar.18 | Purchases | 120 | 60 | 7,200 | 20 | 50 | 1,000 | |||
60 | 55 | 3,300 | ||||||||
120 | 60 | 7,200 | ||||||||
200 | 11,500 | |||||||||
20 | 50 | 1,000 | ||||||||
60 | 55 | 3,300 | ||||||||
120 | 60 | 7,200 | ||||||||
Mar.25 | Purchases | 200 | 62 | 12,400 | 200 | 62 | 12,400 | |||
400 | 23,900 | |||||||||
Mar.29 | Sales | 40 | 60 | 2,400 | 20 | 50 | 1,000 | |||
120 | 62 | 7,440 | 60 | 55 | 3,300 | |||||
160 | 9,840 | 80 | 60 | 4,800 | ||||||
80 | 62 | 4,960 | ||||||||
720 | 41,600 | 580 | 32,540 | 240 | 14,060 |
Therefore, the cost assigned to the ending inventory using the specific identification method is $14,060.
4.
Particulars | FIFO | LIFO | Weighted average | Specific identification |
Sales | 50,900 | 50,900 | 50,900 | 50,900 |
Add: Ending inventory | 14,800 | 13,680 | 14,352 | 14,060 |
Less: Opening inventory | (5,000) | (5,000) | (5,000) | (5,000) |
Less: Purchases | (41,600) | (41,600) | (41,600) | (41,600) |
Gross profit | 19,100 | 17,980 | 18,652 | 18,360 |
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