Question

Montoure Company uses a perpetual inventory system. It entered into the following calendar-year purchases and sales transactions

Date

Activities

Units Acquired at Cost

Units Sold at Retail

Jan.

1

Beginning inventory

660

units

@ $60 per unit

Feb.

10

Purchase

330

units

@ $57 per unit

Mar.

13

Purchase

110

units

@ $45 per unit

Mar.

15

Sales

715

units

@ $70 per unit

Aug.

21

Purchase

160

units

@ $65 per unit

Sept.

5

Purchase

570

units

@ $61 per unit

Sept.

10

Sales

730

units

@ $70 per unit

Totals

1,830

units

1,445

units

Compute the cost assigned to ending inventory using weighted average, and specific identification. For specific identification, units sold consist of 660 units from beginning inventory, 230 from the February 10 purchase, 110 from the March 13 purchase, 110 from the August 21 purchase, and 335 from the September 5 purchase.
4. Compute gross profit earned by the company for each of the four costing methods. (Round your average cost per unit to 2 decimal places.)
5. The company’s manager earns a bonus based on a percent of gross profit. Which method of inventory costing produces the highest bonus for the manager?

• Specific Identification

• LIFO

• Weighted Average

• FIFO

Answer 1

Requirement 1 | Specific Identification Method Goods Purchased Date Unit Activity Units Cost Jan. 1 Beginning Inventory 660 $ 60.00 Feb. 10 Purchase 330 $ 57.00 Mar. 13 Purchase 110 $ 45.00 Aug. 21 Purchase 160 $ 65.00 Sep. 5 Purchase 570 $ 61.00 1,830 Cost of goods sold Units Unit COGS Sold Cost 660 $ 60.00 $ 39,600 230 $ 57.00 $ 13,110 110 $ 45.00 $ 4,950 110 $ 65.00 $ 7,150 $ 61.00 $ 20,435 1,445 $ 85,245 Inventory Balance Ending Cost per Ending Units Unit Cost $ 60.00 $ 100 $ 57.00 $ 5,700 $ 45.00 $ 50 $ 65.00 $ 3,250 235 $ 61.00 $ 14,335 385 $ 23,285 335

Requirement 2 | Ending Inventory, COGS - Weighted Average Cost Goods Purchased Cost of goods sold Date Units Price Total Units Price Total Inventory Balance Units Price Total Jan. 1 660 $ 60.00 $ 39,600 Feb. 10 330 $ $ 57 $ 18,810 660 $ 60.00 $ 39,600 330 $ 57.00 $ 18,810 990 $ 59.00 $ 58,410 Mar. 13 110 $ 45$ 4,950 990 $ 59.00 $ 110 $ 45.00 $ 1,100 $ 57.60 $ 58,410 4,950 63,360 Mar. 15 715 $ 57.60 $ 41,184 385 $ 57.60 $ 22,176 Aug. 21 160 $ 65.00 $ 10,400 385 $ 57.60 $ 22,176 160 $ 65.00 $ 10,400 545 $ 59.77 $ 32,576 Sep. 5 570 $ 61.00 $ 34,770 545 $ 59.77 $ 32,576 570 $ 61.00 $ 34,770 1,115 $ 60.40 $ 67,346 Sep. 10 730 $ 60.40 $ 44,092 385 $ 60.40 $ 23,254 Total 1,170 68,930 1,445 85,276 385 23,254

Requirement 3 | Ending Inventory, COGS - FIFO Under FIFO Method, the goods which are brought first are sold first. Goods Purchased Cost of goods sold Date Units Price Total Units Price Total Jan. 1 Inventory Balance Units Price Total 660 $ 60.00 $ 39,600 Feb. 10 330 $ 57.00 $ 18,810 660 $ 60.00 $ 330 $ 57.00 $ 39,600 18,810 Mar. 13 110 $ 45.00 $ 4,950 660 $ 60.00 $ 330 $ 57.00 $ 110 $ 45.00 $ 39,600 18,810 4,950 Mar. 15 660 $ 60.00 $ 39,600 55 $ 57.00 $ 3,135 $ 60.00 $ 275 $ 57.00 $ 110 $ 45.00 $ 15,675 4,950 Aug. 21 160 $ 65.00 $ 10,400 275 $ 57.00 $ 110 $ 45.00 $ 160 $ 65.0 $ 15,675 4,950 10,400 Sep. 5 570 $ 61.00$ 34,770 275 $ 57.00 $ 110 $ 45.00 $ 160 $ 65.00 $ 570 $ 61.00 $ 15,675 4,950 10,400 34,770 Sep. 10 275 $ 57.00 $ 15,675 110 $ 45.00 $ 4,950 160 $ 65.00 $ 10,400 185 $ 61.00 $ 11,285 $ 57.00 $ $ 45.00 $ $ 65.00 $ 385 $ 61.00 $ 23,485 Total 1,170 68,930 1,445 85,045 385 23,485

Requirement 4 | Ending Inventory, COGS - LIFO Under FIFO Method, the goods which are brought first are sold first. Goods Purchased Cost of goods sold Date Units Price Total Units Price Total Jan. 1 Inventory Balance Units Price Total 660 $ 60.00 $ 39,600 Feb. 10 330 $ 57.00 $ 18,810 660 $ 60.00 $ 39,600 330 $ 57.00 $ 18,810 Mar. 13 110 $ 45.00 $ 4,950 660 $ 60.00 $ 39,600 330 $ 57.00 $ 18,810 110 $ 45.00 $ 4,950 Mar. 15 275 $ 60.00 $ 16,500 330 $ 57.00 $ 18,810 110 $ 45.00 $ 4,950 385 $ 60.00 $ 23,100 $ 57.00 $ $ 45.00 $ Aug. 21 160 $ 65.00 $ 10,400 385 $ 60.00 $ 23,100 160 $ 65.00 $ 10,400 Sep. 5 570 $ 61.00 $ 34,770 385 $ 60.00 $ 23,100 160 $ 65.00 $ 10,400 570 $ 61.00 $ 34,770 Sep. 10 385 $ 60.00 $ 23,100 160 $ 65.00 $ 10,400 570 $ 61.00 $ 34,770 Total 1,170 68,930 1,445 85,430 385 23,100

FIFO Method has the Highest Gross Profit Ratio. So, FIFO Metho produces the highest bonus for the Manager.