Question

7-13 “Gamma Company has six units of inven- 7 tory, two purchased for $4 each and fourg purchased for $5 each. Thus, the weighted- j average cost of the inventory is ($4 + $5) = 2 = 1 $4.50 per unit.” Do you agree? Explain.

Answer 1

1st Image
Units	Rate	Amount
2	$      4.00	$      8.00
4	$      5.00	$   20.00
6	$      4.67	$   28.00
Therefore, Weighted Average Cost of the inventory =					$      4.67

2nd Image

Data

			Units	Rate	Amount
Beginning Inventory			3000	£      2.00	£   6,000.00
Purchases
Week 1			2000	£      2.10	£   4,200.00
Week 2			2000	£      2.20	£   4,400.00
week 3			1000	£      2.30	£   2,300.00
Week 4			1000	£      2.50	£   2,500.00
Cost of Goods available for sale			9000	£      2.16	£ 19,400.00

Weighted Average
Cost of Goods sold			5000	£      2.16	£ 10,777.78
Ending Inventory			4000	£      2.16	£   8,622.22

LIFO
Cost of Goods sold
From	Week 4		1000	£      2.50	£    2,500.00
	Week 3		1000	£      2.30	£    2,300.00
	Week 2		2000	£      2.20	£    4,400.00
	Week 1		1000	£      2.10	£    2,100.00
			5000		£ 11,300.00
Ending Inventory
From	Week 1		1000	£      2.10	£    2,100.00
	Beg. Inv		3000	£      2.00	£    6,000.00
			4000		£   8,100.00

FIFO
Cost of Goods sold
From	Beg. Inv		3000	£      2.00	£    6,000.00
	Week 1		2000	£      2.10	£    4,200.00
			5000		£ 10,200.00
Ending Inventory
From	Week 2		2000	£      2.20	£    4,400.00
	week 3		1000	£      2.30	£    2,300.00
	Week 4		1000	£      2.50	£    2,500.00
			4000		£   9,200.00

3rd Image
Accounts Receivable T.O ratio =				Net Sales / Average Accounts Receivable
			=	$ 2565 / [($ 261 + $ 299)/2]
			=	9.16
Average collection period			=	365 days / Accounts Receivable T.O ratio
			=	365 / 9.160714
			=	40	days	(approx)