Question

Warnerwoods Company uses a perpetual inventory system. It entered into the following purchases and sales transactions for March.

Date

Activities

Units Acquired at Cost

Units Sold at Retail

Mar.

1

Beginning inventory

230

units

@ $53.60 per unit

Mar.

5

Purchase

290

units

@ $58.60 per unit

Mar.

9

Sales

390

units

@ $88.60 per unit

Mar.

18

Purchase

150

units

@ $63.60 per unit

Mar.

25

Purchase

280

units

@ $65.60 per unit

Mar.

29

Sales

260

units

@ $98.60 per unit

Totals

950

units

650

units

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. For specific identification, the March 9 sale consisted of 130 units from beginning inventory and 260 units from the March 5 purchase; the March 29 sale consisted of 110 units from the March 18 purchase and 150 units from the March 25 purchase.

4. Compute gross profit earned by the company for each of the four costing methods. For specific identification, the March 9 sale consisted of 130 units from beginning inventory and 260 units from the March 5 purchase; the March 29 sale consisted of 110 units from the March 18 purchase and 150 units from the March 25 purchase. (Round weighted average cost per unit to two decimals and final answers to nearest whole dollar.)

Answer 1

Cost of goods available for sale Ans. 1 Total cost Units Cost per unit Beginning inventory $53.60 $12,328 230 Purchases: $58.60 $16,994 $9,540 $18,368 5-Mar 290 $63.60 150 18-Mar $65.60 280 25-Mar $57,230 Total Cost of goods available for sale 950 Ending inventory units Units available for sale Total units sold Ans. 2 950-650 300 units

Ans. 3 a Perpetual FIFO: Purchase Cost of goods sold Balance Total cost Total cost Total cost Date Quantity Rate Quantity Rate Quantity Rate $53.60 $12,328 $53.60 $12,328 $12,328 $16,994 1-Mar 230 230 $58.60 $16,994 $53.60 5-Mar 290 230 $58.60 290 $53.60 $12,328 $9,376 9-Mar 230 $58.60 $58.60 $7,618 $7,618 $9,540 $7,618 $9,540 $18,368 160 130 $63.60 $9,540 $58.60 18-Mar 150 130 $63.60 150 $65.60 $18,368 $58.60 25-Mar 280 130 $63.60 150 $65.60 280 $58.60 $7,618 $8,268 29-Mar 130 $63.60 $63.60 $1,272 $18,368 130 20 $65.60 280 Cost of goods sold $37,590 $19,640 Total Ending inventory *In FIFO method the units that have purchased first, are released the first one and the ending inventory units remain from the last purchases.

Ans. 3 b LIFO: Purchase Cost of goods sold Balance Total cost Total cost Total cost Quantity Quantity Rate Date Quantity Rate Rate $53.60 $12,328 $12,328 $16,994 $53.60 $12,328 $16,994 1-Mar 230 230 $58.60 $53.60 5-Mar 290 230 $58.60 290 $58.60 $16,994 $5,360 9-Mar 290 $53.60 $53.60 $6,968 $6,968 $9,540 $6,968 $9,540 $18,368 $6,968 $9,540 $1,312 100 130 $63.60 $9,540 $53.60 18-Mar 150 130 $63.60 150 $65.60 $18,368 $53.60 25-Mar 280 130 $63.60 150 $65.60 280 $65.60 $17,056 $53.60 29-Mar 260 130 $63.60 150 $65.60 20 $39,410 $17,820 Total Cost of goods sold Ending inventory *in LIFO method the units that have purchased last, are released the first one and the ending inventory units remain from the first purchases.

Weighted Average Ans, 3C Purchase Cost of goods sold Balance Total cost Total cost Total cost Rate Date Quantity Quantity Rate Quantity Rate $53.60 $12,328 $16,994 $53.60 $12,328 1-Mar 230 230 $58.60 $56.39 $29,322 $7,331 5-Mar 290 520 $56.39 $21,991 $56.39 9-Mar 390 130 $63.60 $9,540 $18,368 $60.25 18-Mar 16871 150 280 $65.60 $62.93 25-Mar 280 560 35239 $16,361 29-Mar $62.93 $62.93 $18,878 260 300 $38,352 $18,878 Total Cost of goods sold Ending inventory *Weighted average rate is calculated by using the formula of (Total available balance/Total units available).

Ans. 3 d Specific Identification: Available for sale Cost of goods sold Ending inventory Purchase date Activity Units Rate Cost Units Rate Cost Units Rate Cost $53.60 $12,328 $16,994 $9,540 $18,368 $53.60 $6,968 $53.60 $5,360 $1,758 $2,544 Beginning inventory 1-Mar 230 130 100 $58.60 $58.60 $15,236 $58.60 Purchases 5-Mar 290 260 30 $63.60 $63.60 $6,996 $9,840 $63.60 Purchases 18-Mar 150 110 40 $65.60 $65.60 $65.60 $8,528 Purchases 25-Mar 280 150 130 $39,040 $18,190 Total Cost of goods sold Ending inventory Ending inventory units Total units available Total units sold Units available (a) Sold units (b) Ending inventory (a-b) Purchase date 1-Mar 230 130 100 5-Mar 290 260 30 18-Mar 150 110 40 25-Mar 280 150 130

Weighted average FIFO Ans. 4 LIFO Specific identification $60,190 -$37,590 $60,190 -$39,410 $60,190 $60,190 Sales -$38,352 $21,838 (-) Cost of goods sold Gross margin -$39,040 $22,600 $20,780 $21,150 Calculation of sales: Units Date Rate Cost $34,554 $25,636 $88.60 9-Mar 390 $98.60 29-Mar 260 $60,190 Total sales