a)
under weighted average cost
cost of goods sold=weighted average unit cost*units sold
units sold is 120 units
weighted average unit cost=total cost of inventory/total units
total cost of inventory=(55*$35)+(80*$28)+(65*32)=$6245
total units=55+80+65=200 units
weighted average unit cost=$6245/200=$31.225 per unit
cost of goods sold=$31.225*120=$3747
value of ending inventory=weighted average unit cost*units remaining
units remaing is 80 units (200-120)
value of ending inventory=$31.225*80=$2498
under FIFO
cost of goods sold= (55*$35)+(65*$28)=$3745
under FIFO principle the oldest inventory must be choosen to the first sales,that is first in first out.on the basis of that out of 120 units sold 55 units is taken from the begining balance at the cost of $35 and the remaining part of 120 units is 65 units (120-55) is taken from the first purchase,that is the purchase at june 17.the cost of these 65 units is $28 per unit.therefore the cost of goods sold will be the sum of total cost of 55 units and 65 units.
value of ending inventory=(15*$28)+(65*$32)
under FIFO principle valuation the remaining inventories are 15 units remaing in the june 17 purachase costing $28 per unit (out of 80 units of that purchase 65 units is sold,so the remaining part will be 15 units) and 65 units remaining in the june 25 purchase costing $32 per unit.the value of ending inventory will be the sum of total of 15 units and 65 units.
b)
entry for purchase
accounts title | debit | credit |
inventory | 2240 | |
purchase | 2240 |
purchasing inventory on june 17.inventory is an asset accouint which should be debited when it increases.and purchase is an expense account,it is also a temperory account it should be credited.if the purchase was for cash it is credited on the basis of decrease in cash.and if the purchase was on credit it is on the basis of increase in liability.
the amount is the cost of purchase=$28*80=$2240
journal entry to reflect the sales
accounts title | debit | credit |
cash | 2475 | |
sales | 2475 |
the sales amount is $2475 (55*$45).for cash sales cash increases means asset increaes so it should be debited.sales account is revenue account which should be credited when it increases
journal entry to reflect the inventory
accounts title | debit | credit |
cost of goods sold | 1540 | |
inventory | 1540 |
the cost of goods sold is $1540 ($28*55).as the sale is done the inventory should be decreased.inventory is an asset account which should be credited when it decreases.cost of goods sold is the expenses for the items sold ,as expenses increases it should be debited.
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