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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

240

units

@ $53.80 per unit

Mar.

5

Purchase

295

units

@ $58.80 per unit

Mar.

9

Sales

400

units

@ $88.80 per unit

Mar.

18

Purchase

155

units

@ $63.80 per unit

Mar.

25

Purchase

290

units

@ $65.80 per unit

Mar.

29

Sales

270

units

@ $98.80 per unit

Totals

980

units

670

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 135 units from beginning inventory and 265 units from the March 5 purchase; the March 29 sale consisted of 115 units from the March 18 purchase and 155 units from the March 25 purchase. (Round weighted average cost per unit to two decimals and final answers to nearest whole dollar.)

Answer 1

Solution:

Beginning inventory + purchases = 240 + 295 + 155 + 290 = 980units

sales = 400 + 270 = 670units

Ending inventory = 980 - 670 = 310units

Sales = ( 400 x 88.8) + (270 x 98.8) = 62,196

FIFO:

Cost of goods sold = (240 x 53.8) + (295 x 58.8) + (135* x 63.8) = 12,912 + 17,346 + 8,613 = 38,871

*135 = 670 - 240 - 295

Ending inventory = (20 x 63.8) + (290 x 65.8) = 1276 + 19082 = 20,358

155 - 135 = 20

Gross profit = sales - cost of goods sold = 62,196 - 38871 = 23,325

LIFO:

Cost of goods sold = (295 x 58.8) + ( 105* x 53.8) + (270 x 65.8) = 17346 + 5649 + 17766 = 40,761

105 = 400-295

Ending inventory = (135 x 53.8) + (155 x 63.8) + (20 x 65.8) = 7263 + 9889 + 1316 = 18,468

Gross profit = sales - cost of goods sold = 62196 - 40761 = 21,435

Weighted average method:

Weighted averge perpetual
	Goods purchased			Cost of goods sold					Inventory Balance
Date	# of units		Cost per unit	# of units sold		Cost per unit	Cost of goods sold		# ofunits		Cost per unit	Inventory Balance
Mar-01									240	@	53.8	=	12912
Mar-05	295	@	58.8						240	@	53.8	=	12912
									295	@	58.8	=	17346
Average									535	@	56.56	=	30258
Mar-09				400	@	56.56	=	22624	135	@	56.55	=	7634
Mar-18	155	@	63.8						135	@	56.55	=	7634
									155	@	63.8	=	9889
Average									290	@	60.42	=	17523
Mar-25	290	@	65.8						135	@	56.55	=	7634
									155	@	63.8	=	9889
									290	@	65.8	=	19082
									580	@	63.11	=	36605
Mar-29				270	@	63.11	=	17039.7	310	@	63.11	=	19565.3
Totals								39663.7					19565.3

Gross profit = sales - cost of goods sold = 62,196 - 39664 = 22,532

Specific identification:

Cost of goods sold = (135 x 53.8 ) + (265 x 58.8 ) + (115 x 63.8 ) + (155 x 65.8) = 7263 + 15,582 + 7337 + 10,199 = 40,381

Ending inventory = (105 x 53.8) + (30 x 58.8) + (40 x 63.8) + (135 x 65.8) = 5649 + 1764 + 2552 + 8883 = 18,848

Gross profit = sales - cost of goods sold = 62,196 - 40381 = 21,815