Question

Question 2 The following information relates to Good Kitchen Ltd.’s inventory transactions during the month of March. Units Cost/Unit Amount Mar. 1 Beginning inventory 6,300 $20.00 $126,000 7 Sale 3,800 12 Purchase 2,800 $22.00 $61,600 16 Purchase 900 $22.00 $19,800 18 Sale 2,800 27 Purchase 3,700 $27.00 $99,900 29 Sale 4,000 All of the units sold were priced at $68.00 per unit.

Good Kitchen Ltd. uses the periodic inventory system. Calculate Good Kitchen’s cost of goods sold, gross margin, and ending inventory for the month of March using FIFO. Cost of Goods Sold $ Gross margin $ Ending Inventory $

Good Kitchen Ltd. uses the periodic inventory system. Calculate Good Kitchen’s cost of goods sold, gross margin, and ending inventory for the month of March using weighted-average. (Round calculations for cost per unit to 2 decimal places, e.g. 10.52 and final answers to 0 decimal places, e.g. 61,052.) Cost of Goods Sold $ Gross margin $ Ending Inventory $

Which of the cost formulas would produce the higher gross margin? FIFOweighted-average produces the higher gross margin.

Answer 1

Cost of goods available for sale Mar 1, Beginning inventory Mar 12, Purchase Mar 16, Purchase Mar 27, Purchase Cost of goods available for sale Units 6,300 2,800 900 3,700 13,700 Per unit $ 20.00 $ 22.00 $ 22.00 $ 27.00 $ $ $ $ Cost 126,000 61,600 19,800 99,900 307,300 Units sold Ending inventory (Units available for sale - Units sold) 10,600 Units 3,100 Units (3,800 + 2,800 +4,000) (13,700 units - 10,600 units) 1) Periodic -- FIFO - Cost of goods sold Date Mar 1, Beginning inventory Mar 12, Purchase Mar 16, Purchase Mar 27, Purchase Cost of goods sold Units 6,300 2,800 900 600 10,600 Per unit $ 20.00 $ 22.00 $ 22.00 $ 27.00 $ $ $ $ $ Cost 126,000 61,600 19,800 16,200 223,600 1) Periodic -- FIFO - Ending Inventory Date Mar 27, Purchase Ending Inventory Units 3,100 3,100 Per unit $ 27.00 $ $ Cost 83,700 83,700

Periodic Average cost per unit Weighted average cost per unit = Total cost of goods of available for sale / Total units $ 22.43 ($ 307,300 / 13,700 units) 3) Average cost Cost of goods sold Ending inventory $ 237,765 (10,600 units * $ 22.43) $ 69,535 (3,100 units * $ 22.43) Final Answer Sales Cost of goods sold Gross Profit (Sales - Cost of goods sold) Ending inventory Periodic FIFO $ 720,800 | $ 223,600 $ 497,200 $ 83,700 Periodic Average $ 720,800 (10,600 units * $ 68) $ 237,765 $ 483,035 $ 69,535 FIFO produces highest gross margin