Question

P6.5B (LO 2, 3) AP Bennett Basketball sells a variety of basketballs and accessories. Information follows for Bennett Basketball's purchases and sales during February and March for Up-Snap, one of its top brands of basketballs: Purchases Sales Units Unit Cost Units Unit Price Feb. 7 18 $32 50 $20 30 Mar. 10 26 50 19 Bennett uses a perpetual inventory system. On February 1, Bennett had 36 units on hand at a cost of $21 each. All purchases and sales during February and March were on account. Instructions a. Determine the cost of goods sold and ending inventory under a perpetual inventory system using (1) FIFO and (2) weighted average. (Round the weighted average cost per unit to two decimal places.) b. Calculate gross profit using (1) FIFO and (2) weighted average. Taking It Further What factors should Bennett's owner consider when choosing a cost formula?

Answer 1

Correct Answer:

	FIFO	Weighted Average
Cost of Goods Sold	$ 1,851	$ 1,840
Ending Inventory	$ 361.00	$ 371.58

Working:

Cost of Goods Available for sale
		Units	Cost per unit	value
Beginning Inventory	01-Feb	36	$                     21.00	$                       756.00
Purchases	23-Feb	50	$                     20.00	$                   1,000.00
Purchases	10-Mar	24	$                     19.00	$                       456.00
Total		110		$                   2,212.00

Moving average cost
	Inventory balance	Total cost	Average cost for each units
01-Feb	36	$              756.00	$        21.00
07-Feb	18	$              378.00	$        21.00
23-Feb	68	$          1,378.00	$        20.26
26-Feb	18	$              364.76	$        20.26
10-Mar	42	$              820.76	$        19.54
23-Mar	19	$              371.30	$        19.54

	FIFO
A	Total Units Available for sale			110		$      2,212.00
	Units Sold			91
	Ending Inventory Units			19
	Valuation
	Cost of Goods Sold		36		$                         21.00	$          756.00
			50		$                         20.00	$      1,000.00
			5		$                         19.00	$            95.00
B	Cost of Goods Sold		91	units		$      1,851.00
A-B	Ending Inventory		19	units		$          361.00

	Weighted Average
A	Total Units Available for sale			110		$      2,212.00
	Units Sold			91
	Ending Inventory Units			19
	Valuation
	Cost of Goods Sold		18		$                         21.00	$          378.00
			50		$                         20.26	$      1,013.00
			23		$                         19.54	$          449.42
B	Cost of Goods Sold		91	units		$      1,840.42
A-B	Ending Inventory		19	units		$          371.58

Requirement 2:

	FIFO	Weighted-Average
Gross profit	$ 892.00	$ 902.58

Working:

Sales revenue = (18*32)+(50*30)+(23*29)

= $ 2,743.00

	FIFO	Weighted Average
Sales Revenue	$ 2,743.00	$      2,743.00
Cost of goods sold	$ 1,851.00	$      1,840.42
Gross profit	$ 892.00	$         902.58

End of answer.

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