Question

Chopstick Inc is a retailer operating in the town. Chopstick uses the perpetual inventory method. All ales return from the customer result in the goods being returned to inventory, the inventory is not damage. Assume that there are no credit transactions, all amounts are settled in cash. You are provided with the following information for Chopstick Inc. for the month of January 2019. Date Description Quantity Unit cost or selling price $15 January 1 January 5 January 8 January 10 January 15 January 16 January 20 January 25 Beginning inventory Purchase Sale Sales return Purchase Purchase return Sale Purchase Required: (a) For each the following cost flow assumptions, calculate (1) cost of goods sold, (ii) ending inventory and (iii) gross profit. (1) FIFO (2) LIFO (3) Moving Average cost

Answer 1

FIFO
	Beg. Inv./Purchases				Cost of Goods Sold				Balance
Date	Units	Rate	$ value		Units	Rate	$ value		Units	Rate	$ value
1-Jan	50	15	750						50	15	750
5-Jan	100	14	1400						50	15	750
									100	14	1400
8-Jan					50	15	750
					40	14	560		60	14	840
10-Jan					-10	14	-140		70	14	980
15-Jan	35	18	630						70	14	980
									35	18	630
16-Jan	-10	18	-180						70	14	980
									25	18	450
20-Jan					70	14	980
					20	18	360		5	18	90
25-Jan	10	20	200						5	18	90
									10	20	200
	185		2800		170		2510		15		290

Moving av.
	Beg. Inv./Purchases				Cost of Goods Sold				Balance
Date	Units	Rate	$ value		Units	Rate	$ value		Units	Rate	$ value
1-Jan	50	15	750						50	15	750
5-Jan	100	14	1400						150	14.33	2150
8-Jan					90	14.3	1289.70		60	14.34	860.30
10-Jan					-10	14.3	-143.3		70	14.34	1003.60
15-Jan	35	18	630						105	15.56	1633.60
16-Jan	-10	18	-180						95	15.30	1453.60
20-Jan					90	15.3	1377		5	15.32	76.6
25-Jan	10	20	200						15	18.44	276.6
	185		2800		170		2523.40		15	18.44	276.6

Sale value
8-Jan	90*25=	2250
10-Jan	-10*25	-250
20-Jan	90*25=	2250
Total		4250
ANSWERS:	FIFO	LIFO	Mov. Av.
COGS	2510	2525	2523.40
End./inv.	290	275	276.6
Gross profit	4250-2510=	4250-2525=	4250-2523.40=
(sales-S/R-COGS)	1740	1725	1726.6

Purchase returns

Under all the 3 methods

Negative entry in Purchases column

at purchase cost of the lot from which it is returned.

Sales returns

Negative entry in COGS column

FIFO--taken back in inventory at the most recent cost at the time of sale

LIFO--taken back in inventory at the oldest cost at the time of sale

Mov. Av.--taken back in inventory at the average cost at the time of RETURN