Question

player-meducation.com Apple Bing eege Yahoo SHE - HOMEWORK (TURN IN Calculate ending inventory, cost of goods sold, sales revenue, and gross profit for four inventory methods L06-3, 6-4, 6-5) P6-2A Greg's Bicycle Shop has the following transactions related to its top-selling Mongoose mountain bike for the month of March Page 332 Units 20 15 Unit Cost $250 Total Cost $ 5.000 2,700 Date March 1 March 5 March 9 March 17 March 22 March 27 March 30 Transactions Beginning inventory Sale ($400 each) Purchase Sale ($450 cach) Purchase Sale ($475 each) Purchase 10 280 2,800 2.700 $13,200 Required: 1. Calculate ending inventory and cost of goods sold at March 31, using the specific identification method. The March 5 sale consists of bikes from beginning inventory, the March 17 sale consists of bikes from the March 9 purchase, and the March 27 sale consists of four bikes from beginning inventory and eight bikes from the March 22 purchase. 2. Using FIFO, calculate ending inventory and cost of goods sold at March 31. MacBook Pro

Answer 1

1. Inventory schedule as per Specific Identification Method - Units sold are considered to be purchased from date as specified in the question: Explanation are provided in "Grey shaded column" for understanding purpose.

2. Inventory Schedule as per FIFO method - First In First Out (i.e.) first sale pertains to units purchased first or beginning inventory: Explanation are provided in "Grey shaded column" for understanding purpose.

Specific Identification Method 20 Date Activity 1-Mar Beginning Inventory 5-Mar Sale 9-Mar Purchase 17-Mar Sale 22-Mar Purchase Total Units Cost per Purchase Units Price per Total Acquired unit s sold unit Sales 1 250 5,000 400 6,000 10 270 2,700 8 450 3,600 1 280 2,800 Price Per Units unit *** Total *** Price per unit based on below explanation 20 250 5,000 -15 250 (3,750) Sale of 15 units from beginning inventory 270 2,700 -8 270 (2,160) Sale of 8 units from March 9 purchase 280 2,800 250 (1,000) Sale of 4 units from beginning inventory and 8 units from March 22 280 (2,240) purchase 300 2,700 475 5,700 300 27-Mar Sale 30-Mar Purchase Total Purchases (A) Total Sales (B) 2,700 13,200 15.300 Comprises of 1 unit from beginning inventory (1*250), 2 units from March 9 purchase (2*270), 2 units from March 22 purchase (2*280) & 9 4,050 units from March 30 purchase (9*300) 14 Ending Inventory (C) COGS (D = A-C) Gross Profit (B)-(D) 9,150 6,150

3. Inventory Schedule as per LIFO Method - Last In First Out (i.e. ) first sale pertains to unit acquired just before the sale. Explanation are provided in "Grey shaded column" for understanding purpose.

FIFO (First In First Out) Units Cost per Total Units Price per Total Acquired unit Purchases Sold unit Sales 20 250 5,000 Date Activity 1-Mar Beginning Inventory Price Per Units unit *** Total 20 250 5,000 *** Price per unit based on below explanation 15 400 6,000 5-Mar Sale 9-Mar Purchase 17-Mar Sale 10 270 2,700 8 450 3,600 250 270 250 270 280 270 280 300 (3,750) Sale of 15 units from beginning inventory (i.e) first in has to go out first 2,700 (1,250) 5 units balance in beginning inventory, then 3 units (sale of 8 - 5 from (810) beginning inventory) from next immediate purchase i.e.) from March 9 2,800 (1,890) 7 units balance in March 9 purchase, then 5 units from next immediate (1,400) purchase (i.e.) from March 22 purchase 2,700 22-Mar Purchase 10 280 2,800 12 475 5,700 9 300 27-Mar Sale 30-Mar Purchase Total Purchases (A) Total Sales (B) 2,700 13,200 15,300 Comprises of 5 units from March 22 purchase (5*280) & 9 units from 4,100 March 30 purchase (9*300) Ending Inventory (C) COGS (D = A-C) Gross Profit (B)-(D) 9,100 6,200

LIFO (Last In First Out) Date Activity 1-Mar Beginning Inventory Units Cost per Total Units Price per Total Acquired unit Purchases Sold unit Sales 20 250 5,000 400 6,000 5-Mar Sale 9-Mar Purchase Price Per Units unit *** Total *** Price per unit based on below explanation 20 250 5,000 Sale of 15 units from beginning inventory (i.e) no further purchases -15 250 (3,750) after beginning inventory; so it is considered first for sale 10 270 2,700 8 units from latest purchase before this sale (i.e.)Last purchase on 270 (2,160) March 9 280 2,800 10 270 2,700 450 3,600 (8) 17-Mar Sale 22-Mar Purchase 10 280 2,800 280 12 475 270 5,700 | -2 9 (2,800)| 10 units from latest purchase before this sale (i.e.) March 22 purchase and balance of 2 units from purchase before March 22 purchase (i.e.) (540) from March 9 2,700 9 300 300 27-Mar Sale 30-Mar Purchase Total Purchases (A) Total Sales (B) 2,700 13,200 15,300 Comprises of 5 units from beginning inventory (5*250) & 9 units from 3,950 March 30 purchase (9*300) Ending Inventory (C) COGS (D = A-C) Gross Profit (B)-(D) 9,250 6,050

4. Weighted Average cost Inventory Schedule: Weighted cost of total purchases are considered to value the ending inventory:

Weighted Average Cost Method Units Cost per Units Price per Date Activity Acquired unit Total $ sold unit Total $ 1-Mar Beginning Inventory 20 250 5,000 15 400 6,000 5-Mar Sale 9-Mar Purchase 10 270 2,700 8 450 3,600 17-Mar Sale 22-Mar Purchase 280 2,800 12 475 5,700 27-Mar Sale 30-Mar Purchase 9 300 2,700 Total (A) But Price per unit = Total $ / Total units acquired 49 269.39 13,200 Sales (B) 135 15,300 Ending Inventory in units (C) = (A)-(B) and apply price per unit based on weighted average price per unit arrived as in (A) above 14 269.39 3,771 Cost of Goods Sold (D)=(A)-(C) 9,429 Gross Profit (B)-(D) 5,871

5. Sales Revenue and Gross Profit are provided in the appropriate inventory schedule of questions 1 - 4 above. Summary as below:

	Specified method	FIFO	LIFO	Weighted Avg
Sales Revenue	15,300	15,300	15,300	15,300
Less: COGS	9,150	9,100	9,250	9,429
Gross Profit	6,150	6,200	6,050	5,871

6. As compared to LIFO, FIFO provides more meaningful measure of ending inventory. Because inventory acquired first are to be sold first, in order to avoid any wear & tear or risk of obsolete, to the units acquired. Additionally price per unit keeps increasing and ending inventory at LIFO method results in higher COGS and lesser profit.

7. In case of LIFO from FIFO, additional COGS has to be recorded, because ending Inventory as per FIFO = $ 4,100; it has to be brought down to reconcile with Ending inventory as per LIFO = $ 3,950 Thus entry as below:

Dr. COGS $ 150

Cr. Inventory $ 150

(To record adjustment in valuation of ending inventory)