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

220

units

@ $53.40 per unit

Mar.

5

Purchase

285

units

@ $58.40 per unit

Mar.

9

Sales

380

units

@ $88.40 per unit

Mar.

18

Purchase

145

units

@ $63.40 per unit

Mar.

25

Purchase

270

units

@ $65.40 per unit

Mar.

29

Sales

250

units

@ $98.40 per unit

Totals

920

units

630

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 125 units from beginning inventory and 255 units from the March 5 purchase; the March 29 sale consisted of 105 units from the March 18 purchase and 145 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 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 - $ 220 $ 53.40 11,748 05-Mar 285 $ 58.40 16,644 11,748 220 $ 285 $ 53.40 58.40 09-Mar 125 $ 58.40 7,300 220 $ 160 $ 53.40 58.40 11,748 9,344 18-Mar 145 $ 63.40 9,193 125 $ 58.40 145 $ 63.40 7,300 9,193 25-Mar 270 $ 65.40 17,658 125 $ 58.40 145 $ 63.40 270 $ 65.40 7,300 9,193 17,658 29-Mar 125 $ 125 $ 58.40 63.40 7,300 7,925 20 $ 63.40 270 $ 65.40 290 1,268 17,658 18,926 Totals 630 $ 36,317 In FIFO, we sell the oldest inventory first, hence when the sales of 380 units on 9th march, 220 units will go from the oldest inventory of 220 units and remaining 160 units from 285 units. When we made the sale of 250 units on 29th March, we sold the oldest units purchased - 125 units from the oldest inventory of 125 units and remaining 125 units from second oldest lot, consisting of total 145 units.

Working Notes - LIFO

b) LIFO Purchases Unit - $ COGS Unit - $ Total - $ Quantity Total - $ Date Quantity 01-Mar Inventory balance Quantity Unit - $ Total - $ 220 $ 53.40 11,748 05-Mar 285 $ 58.40 16,644 220 $ 53.40 285 $ 58.40 11,748 16,644 09-Mar 125 $ 53.40 6,675 285 $ 95 $ 58.40 53.40 16,644 5,073 18-Mar 145 $ 63.40 9,193 6 125 $ 53.40 145 $ 63.40 ,675 9,193 25-Mar 270 $ 65.40 17,658 125 $ 53.406,675 145 $ 63.40 9,193 270 $ 65.40 17,658 29-Mar 250 $ 65.40 16,350 125 $ 53.40 145 $ 63.40 20 $ 65.40 290 6,675 9,193 1,308 17,176 Totals 630 $ 38,067 In LIFO, we sell the newest purchases, so in the sale of 9th March, we sold the newest purchase we bought, which was 285 units out of 285 units and the remaining from the second newest, which was 380 - 285 units = 95 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 - Avg. Cost

c) Weighted Average Purchases Unit - $ COGS Quantity Unit - $ Total - $ Total - $ Date Quantity 01-Mar Inventory balance Quantity Unit - $ Total - $ 220 53.40 11,748 05-Mar 285 58.40 16,644 505 56.22 28,392 09-Mar 380 2901 56.22 21,364 125 56.227,028 18-Mar 145 63.40 9,193 270 60.08 16,221 25-Mar 270 65.40 17,658 540 62.74 33,879 62.74 62.74 29-Mar Totals 250 630 15,685 37,049 290 290 18,194 18,194 $

Working Notes - Avg. Cost

Note: To calculate Unit Cost of $ 56.22, after the purchase on 5th March, is calculated in the following manner: (Opening Balance + Amount of Purchase)/(Opening Number of Units + Units Purchased) (11,748 + 16,644)/(220 +285) 28,392/505 = $56.22 Note: To calculate Unit Cost of $ 60.08, after the purchase on 18th March, is calculated in the following manner: (Opening Balance + Amount of Purchase)/(Opening Number of Units + Units Purchased) (7,028 +9,193)/(125 + 145) 16,221/270 = $60.08 Note: To calculate Unit Cost of $ 62.74 after the purchase on 25th March, is calculated in the following manner: (Opening Balance + Amount of Purchase)/(Opening Number of Units + Units Purchased) (16,221 + 17,658)/(270 + 270) 33,879/540 = $62.74

Working Notes - Spec ID.

Ending Inventory Quantity Unit - $ Total - $ d) Specific Identification Method Available for sale Cost of goods sold Date Activity Unit - $ Unit Cost Quantity Unit - $ Total - $ Beginning 01-Jan inventory 220 $ 53.40 125 $ 53.40 $ 6,675 05-Mar Purchase 285 $ 58.40 255 $ 58.40 $ 14,892 18-Mar Purchase 145 $ 63.40 105 $ 63.40 $ 6,657 25-Mar Purchase 270 $ 65.40 145 $ 65.40 $ 9,483 630 $ 37,707 95 $ 53.40 30 $ 58.40 40 $ 63.40 125 $ 65.40 290 $ 5,073 $ 1,752 $ 2,536 $ 8,175 $ 17,536 920 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 $ LIFO Avg. Cost Spec. ID 58,192 $ 58,192 $ 58,192 $ 58,192 (380 X $88.40) + (250 x $98.40) Sales Calculation Less: Cost of goods sold Gross Profit $ $ 36,317 21,875 $ $ 38,067 20,125 $ $ 37,049 $ 21,143$ 37,707 20,485