Question

The following information is for the inventory of mini-kettles at Concord Company Limited for the month of May:

Date		Transaction		Units In			Unit Cost			Total			Units Sold			Unit Price			Total
May 1		Balance		140				$4.20		$588
6		Purchase		850				4.20		3,570
7		Sale											320				$7.20		$2,304
10		Sale											320				7.40		2,368
12		Purchase		420				5.00		2,100
15		Sale											240				8.00		1,920
18		Purchase		320				4.80		1,536
22		Sale											420				7.80		3,276
25		Purchase		500				4.40		2,200
30		Sale											240				7.60		1,824
Totals				2,230						$9,994			1,540						$11,692

A. Assuming that the periodic inventory method is used, calculate the inventory cost at May 31 under FIFO.

B. Assuming that the periodic inventory method is used, calculate the inventory cost at May 31 under weighted average. (Round weighted average unit cost to 2 decimal places, e.g. 52.75 and final answer to 0 decimal places, e.g. 5,275.)

C. Which method will yield the higher current ratio or gross profit?

______ will yield the highest ending inventory

______  gives a higher gross profit.

Answer 1

FIFO method states that goods purchased first are sold first

Weighted average method uses average cost for the purpose of calculation

Under periodic method, all records are updated at the end of the period and not after each transaction.

Units in Ending Inventory = 2230-1540 = 690 units

Inventory cost under FIFO = 500*4.4+190*4.8

= $3,112

Weighted average cost per unit = 9994/2230 = $4.48 per unit

Ending Inventory value = 4.48*690

= $3,091.2

FIFO will yield the highest ending inventory

And hence, highest current ratio

FIFO gives higher gross profit as cost of goods sold is lower