Question

AP7-6B (Calculation of ending inventory and cost of goods sold—perpetual system) The following information relates to Good Kitchen Ltd.'s inventory transactions during the month of March. Cost/Unit $18.00 Amount $108,000 Mar. 1 Units 6,000 4,000 2,500 Beginning inventory Sale Purchase Purchase Sale Purchase Sale $20.00 $20.00 $ 50,000 $ 16,000 16 18 800 27 2,500 4,000 3,500 $25.00 $100,000 29 All of the units sold were priced at $65 per unit. HAPTER 7 Inventory Required a. Good Kitchen Ltd. uses the perpetual inventory system. Calculate Good Kitchen's cost of goods sold, gross margin, and ending inventory for the month of March using: i. FIFO ii. weighted average. Round weighted average per unit cost to two decimal places. b. Which of the cost formulas would produce the higher gross margin?

Answer 1

Requirement A () FIFO Method Perpetual inventory Record Purchases Cost of goods sold unit cost Total cost Quantity unit cost Total cost Date Quantity Mar-01 Inventory Quantity unit cost total cost 6000 $18.00 $1,08,000.00 Mar-07 4000 $18.00 $ 72,000.00 2000 $18.00 $ 36,000.00 Mar-12 2500 $ 20.00 $ 50,000.00 2000 $18.00 2500 $ 20.00 $ $ 36,000.00 50,000.00 Mar-16 800 $ 20.00 $ 16,000.00 2000 $18.00 2500 $ 20.00 800 $20.00 $ $ $ 36,000.00 50,000.00 16,000.00 Mar-18 2000 $18.00 500 $ 20,00 $ $ 36,000 10,000 2000 $ 20.00 800 $20,00 $ $ 40,000.00 16,000.00 Mar-27 4000 $ 25.00 $1,00,000,00 2000 $ 20.00 800 $ 20.00 4000 $25.00 $ 40,000.00 $ 16,000.00 $1,00,000.00 29-Mar 3300 $25.00 $ 82,500.00 2000 $20.00 800 $ 20.00 700 $25.00 $40,000.00 $ 16,000.00 $17.500.00 10000 $ 1,91,500 3300 $ 82,500 Sales Less: Cost of Goods sold Gross Margin $ 6,50,000.00 $(1,91,500.00) $ 4,58,500.00 Requirement A (11) Weighted Avg Method Perpetual inventory Record Purchases Cost of goods sold unit cost Total cost Quantity unit cost Total cost Date Quantity Mar-01 Inventory Quantity unit cost total cost 6000 $18.00 $1,08,000.00 Mar-07 4000 $18.00 $72,000.00 2000 $18.00 $ 36,000.00 Mar-12 2500 $ 20.00 $ 50,000.00 2000 $18.00 2500 $ 20.00 4500 $ 19.11 $ $ $ 36,000.00 50,000.00 86,000.00 Mar-16 800 $ 20.00 $ 16,000.00 4500 $ 19.11 800 $ 20.00 5300 $19.25 $ 86,000.00 $ 16,000.00 $1,02,000.00 Mar-18 2500 $19.25 $ 48,113 2800 $19.25 $ 53,887 Mar-27 4000 $ 25.00 $1,00,000.00 2800 $19.25 $ 53,887 4000 $25.00 $1,00,000.00 6800 $22.63 $ 1,53,887 29-Mar 3500 $22.63 $ 79,206 3300 $22.63 $ 74,680 10000 $ 1,99,320 3300 $ 74,680 Sales Less: Cost of Goods sold Gross Margin $ 6,50,000.00 $ (1,99,320) 4,50,680 Requirement B FIFO Method Produces the Highest Gross Margin Because, FIFO assumes that Goods which came first will sold out first Since Cost of goods purchased first is lower, so cost of goods sold will be less Results in higher Gross margin