Question

question 2 (8 marks) Assume the following data for Wangara Ltd for the month of May 2020: Total cost $1,200 2,250 Date 1 May 2020 5 May 2020 8 May 2020 10 May 2020 15 May 2020 30 May 2020 Description Beginning balance Purchase Sales @S.P. -$14 Purchase Sales @ S.P. =$14 Purchase Units /unit cost 300 units @$4 450 units@$5 240 units 100 units @ $6 220 200 units @ $6.50 600 1,300 S.P.: Selling price Required: Round up answers to the nearest cent (2 decimal places) 1. a. If Wangara Ltd uses a periodic inventory system, for each of (i) Average cost and (1) LIFO methods, calculate: the ending inventory cost, b. cost of sales (COS) and Gross Profit (GP) (4 marks) c. 2. If the net realisable value of ending inventory per unit is $5.00, how will it change your calculations for each of the cost methods in Requirement (1). It no change indicate no change. If there is a change for the method, recalculate: the ending inventory cost b cost of sales (COS) and Gross Profit IGP

Answer 1

1 Ending inventory Cost of goods sold Gross profit Average cost LIFO $3,006.19 $2,650.00 $2,343.81 $2,700.00 $4,096.19 $3,740.00 Working notes: Sales Cost of goods sold Gross profit Average cost LIFO $6,440.00 $6,440.00 (460 units * $14) $2,343.81 $2,700.00 $4,096.19 $3,740.00 2 Inventory should be valued at lower of cost price or net realisable value Inventory valuation as per LIFO will not change since closing inventory cost is lower than net realisable value of $5 per unit Average method Ending inventory units realisable value Cost price $2,950 590*5 $3,006 Inventory will be valued at net realisable value of $2,950 Ending inventory Carrying value $2950 Cost of goods sold No changes Gross profit No changes Change in inventory valuation does not affect cost of goods sold and gross profit The loss in reduction of carrying value $56 ($3,006-$2,950) should be accounted by passing below entry Credit General Journal Loss in reduction of inventory Inventory Debit $56 $56 Average Cost method and Periodic Inventory system Cost of Goods available for Sale Cost of Goods sold Ending inventory Cost per # of Units Cost per unit Cost of Goods available for #of Units sale Cost of Goods Sold # of Units in ending inventory Cost per unit Ending inventory unit 300 450 May 1 2020 May 5 2020 May 10 2020 May 30 2020 Beginning inventory Purchase Purchase Purchase 100 200 1,050 $4.00 $5.00 $6.00 $6.50 $5.10 $1,200 $2,250 $600 $1,300 $5,350 May 8 2020 May 15 2020 Sales Sales 240 220 460 $5.10 $5.10 $5.10 $1,222.86 $1,120.95 $2,343.81 590 $5.10 $5.10 $3,006.19 $3,006.19 590 Opening stock Add: Purchase Goods available for sale Less: Closing stock Cost of Goods sold $1,200 $4,150 $5,350 $3,006 $2,344 LIFO method and Periodic Inventory System Cost of Goods available for Sale Cost of Goods sold Ending inventory Cost per # of Units Cost per unit Cost of Goods available for #of Units sale Cost of Goods Sold #of Units in ending inventory Cost per unit Ending inventory unit 300 May 1 2020 May 5 2020 May 10 2020 May 30 2020 May 8 2020 Beginning inventory Purchase Purchase Purchase Sales 450 100 200 $4.00 $5.00 $6.00 $6.50 $1,200 $2,250 $600 $1,300 200 40 60 $6.50 $6.00 $6.00 $5.00 $1,300 $240 $3601 $800 May 15 2020 160 290 $5.00 $4.00 300 590 $1,4501 $1,200 $2,650 $5,350 460 $2,700 Total Opening stock Add: Purchase Goods available for sale Less: Closing stock Cost of Goods sold 1,050 $1,200 $4,150 $5,350 $2,650 $2,700