Question

Applying and Analyzing Inventory Costing Methods 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 0 0 13 10,400 Purchase 3 1,200 15 18,000 la) 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. Ending inventory balance so Cost of goods sold $ 0 Use negative signs with answers, when appropriate. Balance Sheet Income Statement Transaction Noncash Assets Contributed Capital Earned Capital Cash Asset Cash Asset Liabilities Revenue - Expenses income Record FIFO cost of goods sold (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 Ending inventory balance 5 0 Cost of goods sold 50 Assume that Chen uses the average cost method. Compute both cost of food sold for the current period and the ending inventory balance. (HINT: Do not found average cost per unit for calculations

Answer 1

Compute COGS for 2800 units using FIFO as follows: Cost of goods sold=(1,000 units <$10)+(1.800 units $11) =$10,000+$19,800 =$29,800 Compute Ending inventory as follows: Ending inventory=(800 units $13)+(1.200 units $15) =$10400+$18000 =$28,400 Effect on COGS on accounting equation as follows: Contributed Capital Cash Assets Non-cash assets ($29,800) + Liabilities + + Eained Capital ($29,800)

Income statement revenue = Expenses ($29,800) Net Income ($29,800) Compute COGS for 2800 units using LIFO as follows: Cost of goods sold=(1,200 units <$15) +(800 units $13)+(800 units $11) =$18,000+$10.400+$8.800 = $37,200 Compute Ending inventory as follows: Ending inventory=(1,000 units $11)+(1.000 units $10) = $11,000+$10,000 =$21,000 Effect on COGS on accounting equation as follows:

Contributed Capital Cash Assets Non-cash assets ($37,200) + Liabilities | + | + Eained Capital ($37,200) Income statement revenue = Expenses ($37,200) Net Income ($37,200) Compute Average rate as follows: (1,000x$10)+(1.800x$11)+(800x$13)+(1,200x$15) Averagerate= (1,000+1.800+800+1,200 units $10,000+$19,800+$10.400+$18,000 4.800 =$13.125 per unit

Compute COGS for 2800 units using Weighted avearge as follows: Cost of goods sold = 2.800 units * $13.125 = $36,750 Compute Ending inventory as follows: Ending inventory=(4,800 units -2,800 units)$13.125 = 2.000 units $13.125 = $26,250

Effect on COGS on accounting equation as follows: Contributed Capital Cash Assets Non-cash assets ($36,750) + Liabilities + Eained Capital ($36,750) Income statement revenue Expenses ($36.750) = | Net Income ($36.750)

Answer 2

C) has been computed incorrectly. 

The correct answer is 12.125 per unit.

This is determined by numerator for the average rate = (10,000 + 19800 + 10400 + 18000) = 58200. The total units was given at 4800. 58200/4800 = $12.125 per unit. 

Insert the correct unit price for the rest of the equations.

COGS = 33950

End Inv. = 24250.

These were verified correct through HW Mod 6 in My Business Course (Cambridge Online).