Question

Module II: Week 6: Chapter 7: Problem Solving Assignment Warnerwoods Company uses a perpetual inventory system. It entered into the following purchases and sales transactions for March. (For special identification, the March 9 sale consisted of 80 units from beginning inventory and 340 units from March 5 purchase; the March 29 sale consisted of 40 units from the March 18 purchase and 120 units from the March 25 purchase.) Date Activities March 1 March 5 March 9 March 18 March 25 March 29 Beginning Inventory Purchase Sales Purchase Purchase Sales Totals Units Acquired at Units Sold at Retail Cost 100 units @ $50/unit 400 units @ $55/unit 420 units @ $85/unit 120 units @$60/unit 200 units @ $62/unit 160 units @ $95/unit 820 units 580 units Required: 1. Compute cost of goods available for sale and the number of units available for sale. 2. Compute the number of units in ending inventory. 3. Compute the cost assigned to ending inventory using (a) FIFO, (b) LIFO, (c) Weighted Average, and (d) Specific Identification. (Round all amounts to cents.). 4. Compute gross profit earned by the company for each of the four costing methods in part 3

Answer 1

Ans.1. Cost of goods available for sale = Beginning inventory + Cost of goods purchased

Date	Activities	Units	Per unit cost	Total cost
1-Mar	Beginning inventory	100	$50	$5,000
5-Mar	Purchases	400	$55	$22,000
18-Mar	Purchases	120	$60	$7,200
25-Mar	Purchases	200	$62	$12,400
	Goods available for sale	820		$46,600

So, cost of goods available for sale = $46,600 and number of units available for sale = 820 units

Ans.2. As can be seen from the table in the question,

Units available for sale = 820 units

Units sold = 580 units

So, number of units in ending inventory = 820 – 580 = 240 units

Ans.3.

A. Under FIFO method, it is assumed that units purchased first are sold first. So, for sales on 9 march of 420 units, we will first consume all that is available in beginning inventory = 100 units. Balance 420-100 = 320 units will be consumed from next purchase on 5^th March and so on.

Cost assigned to ending inventory under FIFO will be $14,800 as follows:

FIFO method
Date	Purchases	Sales	Ending balance
	Units	Per unit cost	Total cost	Units	Per unit cost	Total cost	Units	Per unit cost	Total cost
1-Mar							100	$50	$5,000
5-Mar	400	$55	$22,000				100	$50	$5,000
							400	$55	$22,000
9-Mar				100	$50	$5,000	80	$55	$4,400
				320	$55	$17,600
18-Mar	120	$60	$7,200				80	$55	$4,400
							120	$60	$7,200
25-Mar	200	$62	$12,400				80	$55	$4,400
							120	$60	$7,200
							200	$62	$12,400
29-Mar				80	$55	$4,400	40	$60	$2,400
				80	$60	$4,800	200	$62	$12,400
				580		$31,800	240		$14,800

B. Under LIFO method, the latest inventory is assumed to be consumed first such that earlier units remain in stock.

The cost assigned to ending inventory under LIFO method will be $13,680 as per table below:

LIFO method
Date	Purchases	Sales	Ending balance
	Units	Per unit cost	Total cost	Units	Per unit cost	Total cost	Units	Per unit cost	Total cost
1-Mar							100	$50	$5,000
5-Mar	400	$55	$22,000				100	$50	$5,000
							400	$55	$22,000
9-Mar				400	$55	$22,000	80	$50	$4,000
				20	$50	$1,000
18-Mar	120	$60	$7,200				80	$50	$4,000
							120	$60	$7,200
25-Mar	200	$62	$12,400				80	$50	$4,000
							120	$60	$7,200
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