Question

licies note how they TAKING IT FURTHER Companies are required to disclose in a significant accounting policies note how determine the cost of their inventory. Both Pepsi and Coca-Cola state that they use weighted average and F Under what circumstances would it make sense for a company to use both cost formulas? ) AP P6-11A The Baby Store had a beginning inventory on January 1 of 200 full-size strollers at a cost of $110 per unit. During the year, the following purchases were made: Units Unit Cost Mar. 15 80 $111 July 20 60 110 Sept. 4 Dec. 2 10 25 108 103 At the end of the year, there were 35 units on hand. The Baby Store uses a periodic inventory system. Instructions (a) Determine the cost of goods available for sale. (b) During the year, The Baby Store sold the strollers for $290 per unit. Calculate the number of units sold during the year and total sales revenue. (c) Determine the cost of the ending inventory and the cost of goods sold using (1) FIFO and (2) weighted aver- age. (Round the weighted average cost per unit to two decimal places.) (d) Calculate gross profit using (1) FIFO and (2) weighted average.

Answer 1

Correct Answer:

Cost of Goods Available for sale
		Units	Cost per unit	value
Beginning Inventory		200	$                     110.0	$                   22,000.0
Purchases		80	$                     111.0	$                     8,880.0
Purchases		60	$                     110.0	$                     6,600.0
Purchases		25	$                     108.0	$                     2,700.0
Purchases		10	$                     103.0	$                     1,030.0
Total		375		$                   41,210.0

A	Units available for sale	375
B	Less: units on hand	35
C =A-B	Units sold	340
D	sale price per unit	$        290.00
E =C*D	Total Sales revenue	$ 98,600.00

	FIFO	Weighted Average
Cost of Goods Sold	$               37,480.0	$                       37,363
Ending Inventory	$                 3,730.0	$                   3,847.40

		FIFO	Weighted Average
A	Sales Revenue	$                   98,600.00	$    98,600.00
B	Cost of goods sold	$                   37,480.00	$    37,362.60
C =A-B	Gross profit	$                   61,120.00	$    61,237.40

WORKING:

	FIFO
A	Total Units Available for sale			375		$               41,210
	Units Sold			340
	Ending Inventory Units			35
	Valuation
	Cost of Goods Sold		200		$                       110.00	$         22,000.00
			80		$                       111.00	$                  8,880
			60		$                       110.00	$            6,600.00
B	Cost of Goods Sold		340	units		$               37,480
A-B	Ending Inventory		35	units		$              3,730.0

Weighted Average Cost Per unit
Units		(A)	375
Total Cost		(B)	$            41,210.00
Average Cost		(C=B/A)	$                  109.89

Weighted Average
Total Units Available for sale			375		$         41,210.00
Units Sold			87
Ending Inventory Units			288
Valuation
Cost of Goods Sold		340		$                  109.8900	$         37,362.60
Cost of Goods Sold		340	units		$               37,363
Ending Inventory		288	units		$                  3,847

End of answer.

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