Question

George's Music Shop has the following information relating to its inventory:

	# of units	cost per unit
June 1 Beginning Inventory	10	$6
June 4 Purchase	50	$8
June 26 Purchase	20	$9

During June 55 units were sold for $12 each.

Determine the gross profit, assuming George's uses weighted average inventory costing.

Answer 1

Answer)

Weighted Average Method: Under weighted average method, value of cost of goods sold and ending inventory is done on the basis of weighted average cost per unit calculated by dividing the total cost of beginning inventory and purchases made during the period by the aggregate units in beginning inventory and units purchased during the period.

Gross Profit:

Gross Profit = Sales – Cost of Goods sold

                       = $ 660 - $ 440

                       = $ 220.

Therefore the Gross profit of the Music shop for the month of June is $ 220.

Working Notes:

Total Cost:

Total cost = Number of units X Cost per unit

Date	Particulars	Number of Units	Cost per unit	Total Cost
June'1	Beginning Inventory	10	$ 6	$ 60
June'4	Purchase	50	$ 8	$ 400
June'26	Purchase	20	$ 9	$ 180
Total		80		$ 640

Weighted average cost per unit:

Weighted Average cost per unit = (Total Cost of beginning inventory and purchases made during the period/ Total number of units in beginning inventory and units purchased during the period )

Weighted Average cost per unit = $ 640/80 units

                                                         = $ 8.00 per unit

Therefore weighted average cost per unit is $ 8.00.

Cost of Goods Sold:     

Cost of goods sold = number of units sold X weighted average cost per unit

                                 = 55 units X $ 8.00 per unit

                                = $ 440.

Therefore Cost of goods sold is $ 440.

Total Sales:

Sales = number of units sold X Selling price per unit

                                 = 55 units X $ 12.00 per unit

                                = $ 660

Therefore the value of total sales is $ 660