Question

 Warnerwoods Company uses a perpetual inventory system. It entered into the following purchases and sales transactions for March. (For specific identification, the March 9 sale consisted of 80 units from beginning inventory and 340 units from the March 5 purchase; the March 29 sale consisted of 40 units from the March 18 purchase and 120 units from the March 25 purchase.)

 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

SOLUTION

1.

Date	Particulars	Number of units (A)	Cost per unit (B)	Total cost (A*B)
Mar.1	Beginning inventory	100	50	5,000
Mar.5	Purchases	400	55	22,000
Mar.18	Purchases	120	60	7,200
Mar.25	Purchases	200	62	12,400
		820		46,600

The total number of units available for sale is 820 units and the total cost is $46,600.

2. Ending inventory = Opening inventory + Purchases - Sales

= 100 units + 720 units - 580 units = 240 units

Total purchases = Purchases from March 5 + Purchases from March 18 + Purchases from March 25

= 400 + 120 + 200 = 720 units

Total sales = Sales unit on March 9 + Sales unit on March 29

= 420 + 160 = 580 units

Therefore, the number of units in the ending inventory is 240 units.

3a. Calculate the cost assigned to the ending inventory using the FIFO method-

Date	Activity	Purchases	Purchases	Purchases	Sales	Balance	Balance	Balance
		Units (A)	Price per unit (B)	Value (A*B)		Units (A)	Price per unit (B)	Value (A*B)
Mar.1	Opening balance					100	50	5,000
Mar.5	Purchases	400	55	22,000		100	50	5,000
						400	55	22,000
Mar.9					420	80	55	4,400
Mar.18	Purchases	120	60	7,200		80	55	4,400
						120	60	7,200
Mar.25	Purchases	200	62	12,400		80	55	4,400
						120	60	7,200
						200	62	12,400
Mar.29	Sales				160	40	60	2,400
						200	62	12,400
		720			580			14,800

Therefore, the ending inventory using the FIFO method is $14,800.

3b.

Calculate the cost assigned to the ending inventory using the LIFO method-

Date	Activity	Purchases	Purchases	Purchases	Sales	Balance	Balance	Balance
		Units (A)	Price per unit (B)	Value (A*B)		Units (A)	Price per unit (B)	Value (A*B)
Mar.1	Opening balance					100	50	5,000
Mar.5	Purchases	400	55	22,000		100	50	5,000
						400	55	22,000
Mar.9					420	80	50	4,000
Mar.18	Purchases	120	60	7,200		80	50	4,000
						120	60	7,200
Mar.25	Purchases	200	62	12,400		80	50	4,000
						120	60	7,200
						200	62	12,400
Mar.29	Sales				160	80	50	4,000
						120	60	7,200
						40	62	2,480
		720			580			13,680

Therefore, the ending inventory using the LIFO method is $13,680

3c. Calculate the cost assigned to the ending inventory using the Weighted average method-

Date	Activity	Purchases	Purchases	Purchases	Sales	Sales	Sales	Balance	Balance	Balance
		Units (A)	Price per unit (B)	Value (A*B)	Units (A)	Price per unit (B)	Value (A*B)	Units (A)	Price per unit (B)	Value (A*B)
Mar.1	Opening balance							100	50	5,000
Mar.5	Purchases	400	55	22,000				100	50	5,000
								400	55	22,000
								500	54 (27,000/500)	27,000
Mar.9					420	54	22,680	80	54	4,320
Mar.18	Purchases	120	60	7,200				80	54	4,320
								120	60	7,200
								200	58 (11,520/200)	11,520
Marc.25	Purchases	200	62	12,400				200	58	11,520
								200	62	12,400
								400	59.80 (23,920/400)	23,920
Mar.29	Sales				160	59.80	9,568	240	59.80	14,352
		720					580

Therefore, the cost assigned to the ending inventory using the weighted average method is $14,352.

3d. Calculate the cost assigned to the ending inventory using specific identification method-

Date	Activity	Purchases	Purchases	Purchases	Sales	Sales	Sales	Balance	Balance	Balance
		Units (A)	Price per unit (B)	Value (A*B)	Units (A)	Price per unit (B)	Value (A*B)	Units (A)	Price per unit (B)	Value (A*B)
Mar.1	Opening balance							100	50	5,000
Mar.5	Purchases	400	55	22,000				100	50	5,000
								400	55	22,000
								500		27,000
					80	50	4,000	20	50	1,000
					340	55	18,700	60	55	3,300
Mar.9	Sales				420		22,700	80		4,300
Mar.18	Purchases	120	60	7,200				20	50	1,000
								60	55	3,300
								120	60	7,200
								200		11,500
								20	50	1,000
								60	55	3,300
								120	60	7,200
Mar.25	Purchases	200	62	12,400				200	62	12,400
								400		23,900
Mar.29	Sales				40	60	2,400	20	50	1,000
					120	62	7,440	60	55	3,300
					160		9,840	80	60	4,800
								80	62	4,960
		720		41,600	580		32,540	240		14,060

Therefore, the cost assigned to the ending inventory using the specific identification method is $14,060.

4.

Particulars	FIFO	LIFO	Weighted average	Specific identification
Sales	50,900	50,900	50,900	50,900
Add: Ending inventory	14,800	13,680	14,352	14,060
Less: Opening inventory	(5,000)	(5,000)	(5,000)	(5,000)
Less: Purchases	(41,600)	(41,600)	(41,600)	(41,600)
Gross profit	19,100	17,980	18,652	18,360