Question

Required information (The following information applies to the questions displayed below.] Warnerwoods Company uses a perpetual inventory system. It entered into the following purchases and sales transactions for March. Units Sold at Retail Units Acquired at Cost 150 units @ $52.00 per unit 250 units @ $57.00 per unit 310 units @ $87.00 per unit Date Activities Mar. 1 Beginning inventory Mar. 5 Purchase Mar. 9 Sales Mar. 18 Purchase Mar. 25 Purchase Mar. 29 Sales Totals 110 units @ $62.00 per unit 200 units @ $64.00 per unit 180 units @ $97.00 per unit 490 units 710 units 4. Compute gross profit earned by the company for each of the four costing methods. For specific identification, the March 9 sale consisted of 90 units from beginning inventory and 220 units from the March 5 purchase; the March 29 sale consisted of 70 units from the March 18 purchase and 110 units from the March 25 purchase. (Round weighted average cost per unit to two decimals and final answers to nearest whole dollar.) Gross Margin FIFO LIFO Avg. Cost Spec. ID Sales 27,630.00 28,890.00 28,151.30 28,600.00 Less: Cost of goods sold Gross profit

Answer 1

Working Notes - FIFO

Working Notes a) FIFO Purchases Unit - $ COGS Unit - $ Total - $ Quantity Total - $ Date Quantity 01-Mar Inventory balance Quantity Unit - $ Total - $ 150 $ 52.00 7,800 05-Mar 250 $ 57.00 14,250 150 $ 52.00 250 $ 57.00 7,800 14,250 09-Mar 7,800 90 $ 57.00 5,130 150 $ 160 $ 52.00 57.00 9,120 18-Mar 110 $ 62.00 6,820 90 $ 57.00 110 $ 62.00 5,130 6,820 25-Mar 200 $ 64.00 12,800 90 $ 57.00 110 $ 62.00 200 $ 64.00 5,130 6,820 12,800 29-Mar 90 $ 90 $ 57.00 62.00 5,130 5,580 20 200 220 $ 62.00 $ 64.00 1,240 12,800 14,040 Totals 490 $ 27,630 In FIFO, we sell the oldest inventory first, hence when the sales of 310 units on 9th march, 150 units will go from the oldest inventory of 150 units and remaining 160 units from 250 units. When we made the sale of 180 units on 29th March, we sold the oldest units purchased - 90 units from the oldest inventory of 90 units and remaining 90 units from second oldest lot, consisting of total 110 units.

Working Notes - LIFO

b) LIFO Purchases Unit - $ COGS Unit - $ Total - $ Quantity Total - $ Date Quantity 01-Mar Inventory balance Quantity Unit - $ Total - $ 150 $ 52.00 7,800 05-Mar 250 $ 57.00 14,250 150 250 $ 52.00 $ 57.00 7,800 14,250 09-Mar 90 $ 52.00 4,680 250 $ 60 $ 57.00 52.00 14,250 3,120 18-Mar 110 $ 62.00 6,820 90 $ 52.00 110 $ 62.00 4,680 6,820 25-Mar 200 $ 64.00 12,800 90 $ 52.00 110 $ 62.00 200 $ 64.00 4,680 6,820 12,800 29-Mar 180 $ 64.00 11,520 90 $ 52.00 110 $ 62.00 20 $ 64.00 220 4,680 6,820 1,280 12,780 Totals 490 490 s $ 28,890 28.890 In LIFO, we sell the newest purchases, so in the sale of 9th March, we sold the newest purchase we bought, which was 250 units out of 250 units and the remaining from the second newest, which was 310 - 250 units = 60 units In LIFO, we sell the newest purchases, so in the sale of 29th March, we sold the newest purchase we bought, and we didn't consider the second newest as the first newest fulfilled the requirements for the units to be sold.

Working Notes - Weighted Average

c) Weighted Average Purchases Unit - $ Total - $ COGS Quantity Unit - $ Date Quantity 01-Mar Total - $ Inventory balance Quantity Unit - $ Total - $ 150 52.00 7,800 05-Mar 250 57.00 14,250 400 55.13 22,050 09-Mar 310 55.13 17,089 90 55.134,961 18-Mar 110 62.00 6,820 200 58.91 11,781 25-Mar 200 64.00 12,800 400 61.45 24,581 61.45 61.45 29-Mar Totals 180 490 11,062 28,150 220 220 13,520 13,520 $

Working Notes - Weighted Average

Note: To calculate Unit Cost of $55.13, after the purchase on 5th March, is calculated in the following manner: - Opening Balance + Amount of Purchase)/(Opening Number of Units + Units Purchased) 5 (7,800 + 14,250)/(150 + 250) - 22,050/400 = $55.13 Note: To calculate Unit Cost of $58.91, after the purchase on 18th March, is calculated in the following manner: (Opening Balance + Amount of Purchase)/(Opening Number of Units + Units Purchased) (4,961 +6,820)/(90 + 110) 11,781/200 = $58.91 Note: To calculate Unit Cost of $ 61.45 after the purchase on 25th March, is calculated in the following manner: 5 (Opening Balance + Amount of Purchase)/(Opening Number of Units + Units Purchased) 5 (11,781 + 12,800)/(200 + 200) - 24,581/400 = $61.45

Working Notes - Specific Identification Method

d) Specific Identification Method Available for sale Cost of goods sold Ending Inventory Date Activity Unit - $ Unit Cost Quantity Unit - $ Total - $ Quantity Unit - $ Total - $ Beginning 01-Jan inventory 150 $ 52.00 90 $ 52.00 $ 4,680 60 $ 52.00 $ 3,120 05-Mar Purchase 250 $ 57.00 220 $ 57.00 $ 12,540 30 $ 57.00 $ 1,710 18-Mar Purchase 110 $ 62.00 70 $ 62.00 $ 4,340 40 $ 62.00 $ 2,480 25-Mar Purchase 200 $ 64.00 110 $ 64.00 $ 7,040 90 $ 64.00 $ 5,760 710 490 $ 28,600 220 $ 13,070 Under this method, each item sold and each item remaining in the inventory is identified. The cost of specific items that are sold during a period is included in the cost of goods sold for that period and the cost of specific items remaining on hand at the end of a period is included in the ending inventory of that period.

Final Answer:

FIFO $ L IFO Avg. Cost Spec. ID 44,430 $ 44,430 $ 44,430 $ 44,430 (310 X $87.00) + (180 X $97.00) Sales Calculation Less: Cost of goods sold Gross Profit $ 27,630 $ 28,890 $ 28,150 $ 28,600 $ 16,800 $ 15,540 $ 16,280 $ 15,830 (44,430 - (44,430 - (44,430 - (44,430 - 27,630) 28,890) 28,150) 28,600) Calculation