Question

4) A company reports the following transactions for its fishing rods for the month of April. They use a perpetual inventory system Units Unit Cost $325 $350 Date April 1 April 6 April 9 April 14 April 20 April 28 Explanation Inventory Purchase Sale Purchase Sale Purchase $355 $360 a) Identify the Cost of Goods Sold and Ending Inventory under FIFO (6 marks) b) Identify the Cost of Goods Sold and Ending Inventory under average costing (6 marks) c) Under average costing the ending inventory counted 35 rods. Do the journal ent to correct the ending inventory. (4 marks)

Answer 1

Answer to first question in the list:

1) FIFO stands for First In First Out which means that cost of goods sold must consider cost of those goods initially. As a result, ending inventory will contain cost of recent purchases. Under perpetual method, inventory records are updated continously. Purchases Cost of Goods Sold Balance Units Rate Amount Units Rate Amount Units Rate Amount Apr. 1 50 $325.00 $16,250 Apr. 6 25 $350.00 $8,750 $325.00 $350.00 $16,250 $8,750 $25,000 Apr. 9 45 $325.00 $325.00 $14,625 $325.00 $350.00 Apr. 14 $355.00 $7,100 $325.00 $350.00 $355.00 $1,625 $8,750 $10,375 $1,625 $8,750 $7,100 $17,475 Apr. 20 $325.00 $350.00 25 $1,625 $8,750 $10,375 $355.00 $7,100 30 Apr. 28 20 $360.00 $7,200 $355.00 $7,100 $360.00 $7,200 $14,300 (Ending Inventory) 40 $25,000 (Cost of Goods Sold)

2) Under average cost method, total value of purchases shall be divided by total number of units purchased to calculate unit cost. Cost of goods sold shall be calculated by multiplying number of units sold by unit cost calculated just before the date of sale perpetully. Purchases Rate Cost of Goods Sold Units Rate Amount Units Amount Units 50 75 $350 $8,750 $333.33 $15,000 Apr. 1 Apr. 6 Apr. 9 Apr. 14 Apr. 20 Apr. 28 Ending Inventory Rate Amount $325.00 $16,250 $333.33 $25,000 (Rate = $25000 / $333.33] $333.33 $10,000 [Rate = $10000 / $333.33] $342.00 $17,100 [Rate = $17100 / $342] $342.00 $6,840 [Rate = $6840 / $342] $351.00 $14,040 [Rate = $14040 / $351] $351.00 $14,040 (Ending Inventory) $355 $7,100 50 $342.00 $10,260 20 $360 $7,200 40 $25,260 40 (Total Cost of Goods Sold)