Question

Neverstop Corporation sells item A as part of its product line. Information about the beginning inventory, purchases, and sales of item A are given in the following table for the first six months of 2017. The company uses a perpetual inventory system: Purchases Sales Number of Units Sales Price Number of Units 565 Unit Cost $3.80 Date January 1 (beginning inventory) January 24 February 8 March 16 June 11 $5.30 665 $3.90 365 625 $5.50 365 $4.05 Required: 1. Compute the cost of ending inventory by using the weighted average costing method. (Do not round intermediate calculations and round the final answer to 2 decimal places.) Ending inventory $ 25 2,358.84 2. Compute the gross profit for the first six months of 2017 by using the FIFO costing method. (Do not round intermediate calculations and round the final answer to 2 decimal places.) Gross profit 3. Would the gross profit be higher, lower, or the same if Neverstop used the weighted average costing method rather than the FIFO method? O Remain the same Higher O Lower
I just need the answers to 5a. and 5b.

Answer 1

5a. Number of units reported in ending inventory are less

Value of Ending Inventory at 505 units= 365*4.05 + 140*3.90

= $2,024.25

Value at 605 units = 365*4.05 + 240*3.90 = $2,414.25

Hence, ending Inventory is understated by 2414.25 – 2024.25 = $390

Hence, cost of sales will be Overstated by $390

5b. Current Assets i.e. ending Inventory will be understated by $390