Question

Neverstop Corporation sells item A as part of its product line. Information about the beginning inventory, purchases, and sales of item A are given in the following table for the first six months of 2017. The company uses a perpetual inventory system: Purchases Sales Number of Units Sales Price Number of Units 565 Unit Cost $3.80 Date January 1 (beginning inventory) January 24 February 8 March 16 June 11 $5.30 665 $3.90 365 625 $5.50 365 $4.05 Required: 1. Compute the cost of ending inventory by using the weighted average costing method. (Do not round intermediate calculations and round the final answer to 2 decimal places.) Ending inventory $ 25 2,358.84 2. Compute the gross profit for the first six months of 2017 by using the FIFO costing method. (Do not round intermediate calculations and round the final answer to 2 decimal places.) Gross profit 3. Would the gross profit be higher, lower, or the same if Neverstop used the weighted average costing method rather than the FIFO method? O Remain the same Higher O Lower

Answer 1

1) Calculation of weighted average cost per unit
Date	Number of units	Unit Price	Total costs
1-Jan	565	3.8	2147
8-Feb	665	3.9	2594
11-Jun	365	4.05	1478
		Total cost	6219
		Total units	1595
		Cost per unit	4
	Calculation of closing inventory
	Particulars	Amount
	Number of units purchased	1595
	Number of units sold	990
	Closing inventory units	605
	Value of closing inventory	2358.84

2.

Calculation of Gross Profit
Particulars	Units	Unit price	Total
Sales:
24-Jan	365	5.3	1934.5
16-Mar	625	5.5	3437.5
TOTAL	990		5372
Purchases:
1-Jan	565	3.8	2147
8-Feb	425	3.9	1657.5
TOTAL	990		3804.5
Gross Profit			1567.5

3. The profits would be lower if weighted average method is chosen over FIFO method. The reason being the goods were purchased at a lower price in the earlier part of the year. Therefore, if FIFO is chosen, the cost of good sold would be relatively lower.

4.

Date	Particulars	Debit	Credit
1-Jan	Inventory A/c	2147
	To Purchase A/c		2147
24-Jan	Sales A/c	1934.5
	To Inventory A/c		1934.5
8-Feb	Inventory A/c	2593.5
	To Purchase A/c		2593.5
16-Mar	Sales A/c	3437.5
	To Inventory A/c		3437.5
11-Jun	Inventory A/c	1478.25
	To Purchase A/c		1478.25

Since as HOMEWORKLIB's policy I am allowed to answer only 4 sub questions, I would not be able to answer further