Question

Speed World Cycles sells high-performance motorcycles and motocross racers. One of Speed World’s most popular models is the Kazomma 900 dirt bike. During the current year, Speed World Cycles purchased eight of these bikes at the following costs.

Purchase Date	Units Purchased		Unit Cost				Total Cost
July 1	2		$	4,950			$	9,900
July 22	3			5,000				15,000
Aug. 3	3			5,100				15,300
	8						$	40,200

On July 28, Speed World Cycles sold four Kazomma 900 dirt bikes to the Vince Wilson racing team. The remaining four bikes remained in inventory at September 30, the end of Speed World’s fiscal year.

Assume that Speed World Cycles uses a periodic inventory system.

Required:

a. Compute the cost of goods sold relating to the sale on July 28 and the ending inventory of Kazomma 900 dirt bikes at September 30, using the following cost flow assumptions.

1. Average cost. Compute the cost of goods sold relating to the sale on July 28 and the ending inventory of Kazomma 900 dirt bikes at September 30, using Average-cost method.

2. FIFO. Compute the cost of goods sold relating to the sale on July 28 and the ending inventory of Kazomma 900 dirt bikes at September 30, using First-in, first-out (FIFO) method.

3. LIFO. Compute the cost of goods sold relating to the sale on July 28 and the ending inventory of Kazomma 900 dirt bikes at September 30, using Last-in, first-out (LIFO) method.

Answer 1

$ 40,200 $ 5,025 per bike 1) Average cost. Total Cost of bikes purchased Number of bikes purchased Average cost per bike ($40,200 / 8) Number of bikes sold on July 28 Cost of goods sold (4 * $ 5,025) Ending Inventory Total Cost of bikes purchased Less: Cost of goods sold Ending Inventory 20,100 40,200 (20,100) 20,100 $ Cost of goods sold Ending Inventory 20,100 20,100 2) FIFO. Under FIFO method goods bought first should be sold first. Number of units sold Cost of goods sold Purchase Date Units Cost per unit Cost of goods sold [A] [B] [ AB] July 1 2 $ 4,950 $ 9,900 July 22 (4-2) 2 $ 5,000 10,000 Cost of goods sold | 4 $ 19,900 Ending Inventory Total Cost of bikes purchased Less: Cost of goods sold Ending Inventory 40,200 (19,900) 20,300 $ Cost of goods sold Ending Inventory 19,900 20,300

3) LIFO Under LIFO method goods bought last should be sold first Cost of goods sold Purchase Date Units Cost per unit Cost of goods sold [A] [B] [A B] Aug 3 3 $ 5,100 $ 15,300 July 22 (4-3) 1 $ 5,000 5,000 Cost of goods sold 4 $ 20,300 Ending Inventory Total Cost of bikes purchased Less: Cost of goods sold Ending Inventory 40,200 (20,300) 19,900 Cost of goods sold Ending Inventory 20,300 19,900