Question

4 Algorithmic Saved Help Save & Exit Subm Check my work Problem 6-4AA Periodic: Alternative cost flows LO P3 Montoure Company uses a periodic inventory system. It entered into the following calendar-year purchases and sales transactions. Date Activities Units Acquired at Cost Units sold at Retail Jan. 1 Beginning inventory 768 units @ $70.00 per unit Feb. 10 Purchase 480 units @ $67.00 per unit Mar. 13 Purchase 280 units @ $52.00 per unit Mar. 15 Sales 880 units@ $100.00 per unit Aug. 21 Purchase 260 units@ $75.00 per unit Sept. 5 Purchase 669 units@ $71.00 per unit Sept. 10 Sales 1,800 units @ $100.00 per unit Totals 2,448 units 1,880 units Required: 1. Compute cost of goods available for sale and the number of units available for sale. Cost of goods available for sale Number of units available for sale $ 166,260 2,440 units 2. Compute the number of units in ending inventory.

Answer 1

Required 1 :

Cost of goods available for sale = $ 166,280

Number of units Available for sale = 2,440 units

Explanation :

Cost of goods available for sale = (760 units * $70 )+ (480 Units * $67 ) + (280 Units * $ 52 )+ (260 units * $ 75 )+ (660 Units * $ 71 )

Cost of goods available for sale = $ 53,200 +$32,160 +$14,560 +$ 19,500 + $ 46,861

Cost of goods available for sale = $ 166,280

Number of units Available for sale = 760 units + 480 Units + 280 Units +260 Units + 660 Units

Number of units Available for sale = 2,440 units

Required 2 :

Ending Inventory = 560 Units

Explanation :

Ending Inventory = Cost of goods available for sale - Units sold

Ending Inventory = $ 2,440 Units (Required 1 ) - (880 Units + 1,000 Units )

Ending Inventory = 560 Units

Required 3 :
a)	FIFO	$ 39,761
b)	LIFO	$ 39,200
c)	Weighted Average	$ 38,164
d)	Specific Identification	$ 39,240

Explanation :
a) To Calculate the Ending Inventory Under FIFO Method :
	Units	Unit Cost	Total Cost
Ending Inventory from Sept 5 Purchases	560	$ 71	$ 39,761 {560 Units *$71 }
	560		$ 39,761
b) To Calculate the Ending Inventory Under LIFO Method :
	Units	Unit Cost	Total Cost
Ending Inventory from Jan 1 Beginning	560	$ 70	$ 39,200 {560 Units *$70 }
	560		$ 39,200
c) To Calculate the Ending Inventory Under Weighted Average Method :
Average Cost per unit = Cost of goods available for sale / Number of units available for sale
Average Cost per unit = $ 166,280 / 2,440 Units
Average Cost per unit = $ 68.15 Per Unit (Rounded to 2 decimals)
Ending Inventory = Ending Inventory Units * Average cost per unit
Ending Inventory = 560 units * $ 68.15 Per Unit
Ending Inventory = $ 38,164
d) To Calculate the Ending Inventory Under Specific Identification Method :
	Units	Unit Cost	Total Cost
Ending Inventory from Feb 10 Purchases (480 -220)	260 Units	$ 67	$ 17,420 {260 Units *$67 }
Ending Inventory from Aug 21 Purchases (260 -130)	130 Units	$ 75	$ 9,750 {130 Units *$75 }
Ending Inventory from Sept 5 Purchases (660-490)	170 Units	$ 71	$ 12,070 {170 Units *$71 }
	560 Units		$ 39,240

Required 4 :
	FIFO	LIFO	Weighted Average	Specific Identification
Sales	$ 188,000	$ 188,000	$ 188,000	$ 188,000
Less: cost of goods sold	($126,519)	($127,080)	($128,116)	($127,040)
Gross Profit	$ 61,481	$ 60,920	$ 59,884	$ 60,960

Explanation :
To Calculate the Sales :
Date	Units	Unit Price	Total
Mar-15	880	$ 100	$88,000   {880*$100}
Sep-10	1000	$ 100	$100,000   {1000*$100}
	1,880 Units		$ 188,000

To Calculate the Cost of goods sold Under FIFO Method :

Cost of goods sold = Cost of goods available for sale - Ending Inventory Under FIFO

Cost of goods sold = $ 166,280 (See required 1) - $ 39,761 (See Required 3 )

Cost of goods sold = $ 126,519

To Calculate the Cost of goods sold Under LIFO Method :

Cost of goods sold = Cost of goods available for sale - Ending Inventory Under LIFO

Cost of goods sold = $ 166,280 (See required 1) - $ 39,200 (See Required 3 )

Cost of goods sold = $ 127,080

To Calculate the Cost of goods sold Under Weighted Average Method :

Cost of goods sold = Cost of goods available for sale - Ending Inventory Under Weighted Average

Cost of goods sold = $ 166,280 (See required 1) - $ 38,164 (See Required 3 )

Cost of goods sold = $ 128,116

To Calculate the Cost of goods sold Under Specific Identification Method :

Cost of goods sold = Cost of goods available for sale - Ending Inventory Under Specific Identification

Cost of goods sold = $ 166,280 (See required 1) - $ 39,240 (See Required 3 )

Cost of goods sold = $ 127,040

Required 5 :

Answer = C { FIFO }

If Managers earns bonus on the basis of Percent of Gross Profit , then FIFO Method is the Highest

Bonus for Manager because Gross Profit under FIFO ($61,481 ) is Higher Compared to LIFO ($60,920),

Weighted Average ($59,884 ) and Specific Identification ($60,960 )