Question

Activities Units Acquired at Cost 600 units $35 per unit 300 units $32 per unit 150 units $20 per unit Units Sold at Retail Date Jan Beginning inventory Feb. 10 Purchase Mar. 13 Purchase Mar. 15 Sales Aug. 21 Purchase Sept. 5 Purchase Sept. 10 Sales 725 units $80 per unit 190 units $40 per unit 540 units $37 per unit 730 units $80 per unit 1,455 units Totals 1,780 units Required: 1. Compute cost of goods available for sale and the number of units available for sale 2. Compute the number of units in ending inventory 3. Compute the cost assigned to ending inventory using (a) FIFO, (b) LIFO, (c) weighted average, and (a) specific identification. For specific identification, units sold consist of 600 units from beginning inventory, 200 from the February 10 purchase, 150 from the March 13 purchase, 140 from the August 21 purchase, and 365 from the September 5 purchase. (Round your average cost per unit to 2 decimal places.) 4. Compute gross profit earned by the company for each of the four costing methods. (Round your average cost per unit to 2 decimal places.)

Answer 1

1.

Calculation of cost of goods available for sale

Date	Activity	Units	Cost per unit	Total cost ($)
Jan. 1	Beginning inventory	600	$35	21,000
Feb. 10	Purchase	300	$32	9,600
Mar. 13	Purchase	150	$20	3,000
Aug. 21	Purchase	190	$40	7,600
Sep. 5	Purchase	540	$37	19,980
	Total	1,780		61,180

Hence, cost of goods available for sale = $61,180

Number of units available for sale = 1,780

2.

Number of units in ending inventory = Number of units available for sale - Number of units sold

= 1,780 - 1,455

= 325

3.

Calculation of ending inventory

(i) FIFO method

Date	Units	Cost per unit	Total cost ($)
Sep.5	325	$37	12,025

(ii) LIFO method

Date	Units	Cost per unit	Total cost ($)
Jan. 1	325	$35	11,375

(iii) Weight average method

Weighed average price = cost of goods available for sale/Number of units available for sale =$61,180/1,780

= $34.37

Value of ending inventory = 325 x 34.37

= $11,170

(iv)

Specific identification method

Date	Units	Cost per unit	Total cost ($)
Feb. 10	100	$32	3,200
Aug. 21	50	$40	2,000
Sep. 5	175	$37	6,475
	325		$11,675

4.

Sales = 725 x 80 + 730 x 80

= 58,000 + 58,400

= $116,400

Calculation of gross profit

	FIFO method	LIFO method	Weighted average	Specific identification
Cost of goods available for sale	61,180	61,180	61,180	61,180
Ending inventory	- 12,025	- 11,375	- 11,170	- 11,675
Cost of goods sold (ii)	49,155	49,805	50,010	49,505
Sales (i)	116,400	116,400	116,400	116,400
Gross profit (i) - (ii)	67,245	66,595	66,390	66,895

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