Question

1. Mastery Problem: Inventories

   Changing Prices

   You work for a CPA firm that has been hired by Widget Tek Inc., a merchandising company that is getting ready to expand. The president of Widget Tek Inc. is concerned with obtaining a loan for the expansion and wants to be sure that all the financial statements accurately reflect the company’s accounting records.

   As preparation for this assignment, you have been asked to review the effects of changing prices on three inventory costing methods: A method of inventory costing based on the assumption that the most recent merchandise inventory costs should be charged against revenue.LIFO, The method of inventory costing based on the assumption that the costs of merchandise sold should be charged against revenue in the order in which the costs were incurred.FIFO, and A method of inventory costing in which the cost of the units sold and in ending inventory is a weighted average of the purchase costs.weighted average.

   Inventory Records

   Widget Tek Inc.’s original accountant accepted a position with another firm and left in early March. You have been asked to review the The subsidiary ledger containing individual accounts for items of inventory.subsidiary inventory ledger record for Widget Tek Inc.’s main product for March.

   	Inventory
   Date	Quantity			Unit Cost			Total Cost
   Mar. 1		850			$98			$83,300
   		1,275			$95			$121,125
   Mar. 8		650			$98			$63,700
   Mar. 11		325			$98			$31,850
   Mar. 14		325			$98			$31,850
   		780			$103			$80,340
   Mar. 22		260			$98			$25,480
   Mar. 25		260			$98			$25,480
   		1,600			$101			$161,600

   Study the inventory record for March and answer the questions that follow.

   1. Assuming that the product sells for $170 and that 85% of sales are on account, determine the gross profit from sales for March. $

   2. Making the same assumptions as in (1), determine the ending inventory cost for March. $

Answer 1

Calculation o£ Gross poc fit- LTF0!- assume "1700" pro ducts are sold 289000 sales [1700x1707 less.- COGS(1600x101) +(100193)] -(171400) Gross profit → 1,17,600 FIFO :- Sales (1700x170] lectus. coas(850x 98) +(850x95)) -(164050) 289000 Gross profit → 124950 cs Scanned with CamScanner

Weighted average method: = = Su nod. sales less: COGS (1700x98.77] Gross profit 289000 - [1619 10 121090 * Average cost - 624725 Total cost otinventory 5000 6325 total no. of units CS Scanned with CamScanner

☺ calculation of ending inventory LIFO:- Amount Total inventory 1624125 COGS Amount 171400 453325 ending inventory 624725 624725 > FIFO Amount Total inventong Amount 164050 1624725 COGS Ending inventory | 461615 624125 624725 не д а отделер,- Amount 624725 Total inventory Amount 167910 COGS Ending inventory 456815 624725 624725 Scanned with CamScanner
the calculations for gross profit and ending inventory costs are these.