Question

ACG203 – CH 6 – Practice Quiz       NAME:

Gadgets-R-Us sells the Fire TV Stick 4K. The following information is available from the company’s inventory records for the first three months of 2019:
Inventory on January 1 consisted of 140 units at a cost of $20 per unit. There were four purchases in the first quarter:
January 16: 180 units at $30      February 22: 220 units at $40               
March 3: 200 units at $50        March 19: 160 units at $60.
The company sold 600 units from January 1 to March 31. Gadgets-R-Us uses a periodic inventory system.

1 – Determine the Cost of Goods Available for Sale for the three months ended March 31, 2019. (SHOW ALL COMPUTATIONS FOR CREDIT)

2 – How many units of inventory were on hand at March 31, 2019?

3 – Determine the value of ending inventory and Cost of Goods Sold at March 31, 2019 under the FIFO, LIFO, and Average Cost methods.

FIFO:
Ending inventory: Cost of Goods Sold:

LIFO:
Ending inventory: Cost of Goods Sold:

AVERAGE COST METHOD (Round computations to 2 decimal places)
Ending inventory                     Cost of Goods Sold

Answer 1

Facts of the Question:

Date	Particulars	Number of Units	Cost per unit	Total Cost
Jan'1	Beginning Inventory	140	$ 20	$ 2,800
Jan'16	Purchase	180	$ 30	$ 5,400
Feb'22	Purchase	220	$ 40	$ 8,800
Mar'3	Purchase	200	$ 50	$ 10,000
Mar'19	Purchase	160	$ 60	$ 9,600
Total		900		$ 36,600

Answer 1)

Calculation of Cost of Goods available for sale:

Cost of Goods available for sale = Total cost of units in opening inventory + Total cost of units purchased during the period

                                                                      = $ 2,800 + ($ 5,400 + $ 8,800 + $ 10,000 + $ 9,600)

                                                                      = $ 36,600

Therefore total cost of goods available for sale is $ 36,600

Answer 2)

Calculation of units of inventory on hand on March’31, 2019.

Units of inventory on Mar’31 = Units of inventory on Jan’1 + Units purchased during the period from Jan’1 to Mar’31 – units sold during the period from Jan’1 to Mar’31

                                  = 140 units + (180 units + 220 units + 200 units + 160 units) – 600 units

                                 = 300 units

Therefore the company had 300 units in hand on Mar’31.

Answer 3)

First-in, First-out Method

First-in, First-out Method: Under this method following periodic inventory system, the value of inventory is calculated at the end of a certain period on the assumption that the inventory which is bought first will be sold first and so on. Thus the units of inventory which are bought at a latest date will form part of the ending inventory.         

Value of ending inventory

Thus under First-in, First-out Method out of 300 units in inventory on March’31, 140 units will be from the purchase made on March’3 at $ 50 per unit and balance 160 units will be from the purchase made on March’19 at $ 60 per unit.

Date	Particulars	Number of Units	Cost per unit	Total Cost
Mar'3	Purchase	140	$ 50	$ 7,000
Mar'19	Purchase	160	$ 60	$ 9,600
Total		300		$ 16,600

Thus the value of 300 units of inventory under First-in, First-out Method is $ 16,600.

Cost of Goods Sold:

Thus under First-in, First-out Method out of 600 units sold, 140 units will be from beginning inventory at $ 20 per unit, 180 units will be from the purchase made on Jan’16 at $ 30 per unit, 220 units will be from purchase made on Feb’22 at $ 40 per unit and balance 60 units will be from the purchase made on March’3 at $ 50 per unit.

Date	Particulars	Number of Units	Cost per unit	Total Cost
Jan'1	Beginning Inventory	140	$ 20	$ 2,800
Jan'16	Purchase	180	$ 30	$ 5,400
Feb'22	Purchase	220	$ 40	$ 8,800
Mar'3	Purchase	60	$ 50	$ 3,000
Total		600		$ 20,000

Thus the Cost of goods sold under First-in, First-out Method is $ 20,000.

Last-in, First-out Method

Last-in, First-out Method: Under this method following periodic inventory system, the value of inventory is calculated at the end of a certain period on the assumption that the latest bought inventory will be sold first and moving backwards. Thus the units of inventory which are bought at the earliest date will form part of the ending inventory.              

Thus under Last-in, First-out Method out of 300 units in inventory on March 31, 140 units will be from the beginning inventory on Jan’1 at $ 20 per unit and balance 160 units will be from the purchase made on Jan’16 at $ 30 per unit.

Value of ending inventory

Date	Particulars	Number of Units	Cost per unit	Total Cost
Jan'1	Beginning Inventory	140	$ 20	$ 2,800
Jan'16	Purchase	160	$ 30	$ 4,800
Total		300		$ 7,600

Thus the value of 300 units of inventory under Last-in, First-out Method is $ 7,600.

Cost of Goods Sold:

Thus under Last-in, First-out Method out of 600 units sold, 160 units will be from purchase made on Mar’19 at $ 60 per unit, 200 units will be from purchase made on Mar’3 at $ 50 per unit, 220 units will be from purchase made on Feb’22 at $ 40 per unit and balance 20 units will be from purchase made on Jan’ 16 at $ 30 per unit

Date	Particulars	Number of Units	Cost per unit	Total Cost
Jan'16	Purchase	20	$ 30	$ 600
Feb'22	Purchase	220	$ 40	$ 8,800
Mar'3	Purchase	200	$ 50	$ 10,000
Mar'19	Purchase	160	$ 60	$ 9,600
Total		600		$ 29,000

Thus the Cost of goods sold under Last-in, First-out Method is $ 29,000.

Weighted Average Cost Method

Weighted Average Cost Method: Under this method following periodic inventory system, a weighted average cost is calculated by dividing the aggregate value of opening inventory and inventory purchased during the period by Total number of units in beginning inventory and units purchased during the period.

The weighted average cost so calculated is the multiplied with units in the ending inventory to calculated its value.

Date	Particulars	Number of Units	Cost per unit	Total Cost
Jan'1	Beginning Inventory	140	$ 20	$ 2,800
Jan'16	Purchase	180	$ 30	$ 5,400
Feb'22	Purchase	220	$ 40	$ 8,800
Mar'3	Purchase	200	$ 50	$ 10,000
Mar'19	Purchase	160	$ 60	$ 9,600
Total		900		$ 36,600

Weighted average cost = (aggregate value of opening inventory and inventory purchased during the period)/ Total number of units in beginning inventory and units purchased during the period

                                    = $ 36,600/ 900 units

                                    = $ 40.67 per unit

Value of Ending Inventory:

Value of ending inventory = Weighted average cost per unit X number of units in ending inventory

                                                = $ 40.67 X 300 units

                                               = $ 12,200

Thus the value inventory under Weighted Average Cost Method is $ 12,200.

Cost of Goods Sold

Cost of Goods Sold= Weighted average cost per unit X number of units sold

                                                = $ 40.67 X 600 units

                                               = $ 24,400

Thus the Cost of goods sold under Weighted Average Cost Method is $ 24,400.