Question

Use the following to answer questions 7-17 During September, KM Company sells 9,800 watches for $300.00 each. The company has the following inventory purchase transactions for September: # of Units 300 Date 1-Sep 4-Sep 24-Sep Transaction Beginning Inventory Purchase Purchase Unit cost $195.00 $198.00 $200.00 6,000 3,700 10,000 Total Cost $58,500 1,188,000 740,000 $1,986,500 7. $ _What were company's sales for the period? For questions 8 - 10 assume the company uses First-in, First-out (FIFO) inventory valuation. 8. $ 9. $ Calculate ending inventory (FIFO) Calculate cost of goods sold (FIFO) Chapter 6 Page 6-1 10.$__ Calculate gross profit (FIFO) For questions 11 - 13 assume the company uses Last-in, First-out (LIFO) inventory valuation 11. $_ Calculate ending inventory (LIFO) 12. $ Calculate cost of goods sold (LIFO) 13. $ Calculate gross profit (LIFO) For questions 14 - 16 assume the company uses Weighted Average cost inventory valuation 14. $ Calculate ending inventory (WA) 15. $ Calculate cost of goods sold (WA) 16. $ Calculate gross profit (WA) 17. Based on the above, which method would show a larger net income number? (FIFO, LIFO or WA)

Answer 1

7. Sales = 9,800 x $300 = $2,940,000 Ending inventory Units Unit cost Total cost FIFO Purchases Cost of goods sold Date Units Unit cost Total cost | Units Unit cost Total cost 01-Sep 300 195 $ 58,500 300 195 $58,500 04-Sep 6,000 $ 1,188,000 6,000 198 $ 1,188,000 24-Sepl 3,700 200 $ 740,000 3,500 200 $ 700,000 10,000 $ 1,986,500 9,800 $ 1,946,500 200 200 $ 40,000 $ 40,000 200 8. Ending inventory (FIFO) = $40,000 9. Cost of goods sold (FIFO) = $1,946,500 10. Gross profit (FIFO) = $2,940,000-$1,946,500 = $993,500 Ending inventory Units Unit cost Total cost 200 195 $39,000 Date 01-Sep 04-Sep 24-Sep LIFO Cost of goods sold Units Unit cost Total cost 100 195 $19,500 6,000 198 $ 1,188,000 3,700 200 $ 740,000 9,800 $ 1,947,500 Purchases Units Unit cost Total cost 300 195 $ 58,500 6,000 198 $ 1,188,000 L 3,700 200 $ 740,000 10,000 $ 1,986,500 200 $ 39,000 11. Ending inventory (LIFO) = $39,000 12. Cost of goods sold (LIFO) = $1,947,500 13. Gross profit (LIFO) = $2,940,000-$1,947,500 = $992,500

Weighted average method: Average cost per unit = $1,986,500/10,000 units = $198.65 14. Ending inventory (WA) = 200 x $198.65 = 39,730 15. Ending inventory (WA) = 9,800 x $198.65 = $1,946,770 16. Gross profit (WA) = $2,940,000-$1,946,770 = $993,230 17. FIFO method will show largest net income amount.