Chapter 5, Problem 1PSB

1.

Summary Introduction

Introduction:

Inventory is a record of finished goods of a company which they can sell to the customer, work in progress which can be transformed into finish goods and raw material which is a means of production. Inventory is also classified as a current asset in the balance sheet and it is valued by FIFO LIFO and weighted average method.

To calculate: The total cost of goods available for sale and the number of units available for sales.

Answer to Problem 1PSB

The total cost of goods available for sale is 235,500 and the total number of goods available for sale is 65 units

Explanation of Solution

Cost of goods available for sales and number of goods available for sales:

Date	Particular	Unit	Rate ($)	Total Cost ($)
1st April	Opening inventory	20	3000	60000
6th April	Purchases	30	3500	105,000
17th April	Purchases	5	4500	22,500
25st April	Purchases	10	4800	48,000
Total		65		235,500

So, the total cost of goods available for sale is $23,500 and the total number of goods available for sale is 65 units

2.

Summary Introduction

Introduction:

Inventory is a record of finished goods of a company which they can sell to the customer, work in progress which can be transformed into finish goods and raw material which is a means of production. Inventory is also classified as a current asset in the balance sheet and it is valued by FIFO LIFO and weighted average method.

To compute: The number of unit in ending inventory for the company M.

Answer to Problem 1PSB

The number of units in ending inventory is 5 units.

Explanation of Solution

The number of units in closing inventory is as follows:

  $\begin{array}{l}\text{Closing Units= Opening Units+ Units purchased - units sold}\\ \text{=20+30+5+10-(35-25)}\\ \text{=20+45-60=5 units}\end{array}$

The number of units in ending inventory is 5 units

3.

Summary Introduction

Introduction:

Inventory is a record of finished goods of a company which they can sell to the customer, work in progress which can be transformed into finish goods and raw material which is a means of production. Inventory is also classified as a current asset in the balance sheet and it is valued by FIFO LIFO and weighted average method.

To compute: The cost assigned to ending inventory for the company M using FIFO,LIFO and weighted average and specific identification.

Answer to Problem 1PSB

Cost assigned to ending inventory using FIFO is $24,000, using LIFO is $15,000, using weighted average is $ 18115.40 and specific Identification is $22,500.

Explanation of Solution

1. Cost assigned to ending inventory for the company A using FIFO :

Using FIFO method closing inventory of 5 units will consist:

  $\text{Ending inventory= 5}\times 4,800=24,000$

Thus, cost assigned to ending inventory using FIFO is $24,000.

2. Calculating the assigned amount of ending inventory according to LIFO method:

Using the LIFO method closing inventory of 5 units will consist

  $\text{Ending inventory= 5}\times \$3,000=\$15,000$

Thus, cost of assigned to ending inventory using LIFO is $15,000

Calculating the assigned amount of ending inventory according to the weighted-average method:

The weighted average cost is calculated as:

  $\begin{array}{l}\text{weighted average cost= }\frac{\text{Total cost of goods available for sale}}{\text{Total number of units available for sale}}\\ =\frac{\$235,500}{65}=\$3623.8\end{array}$

  $\text{Ending inventory= 5}\times \$3,623.08=\$18115.40$

Thus, cost assigned to ending inventory $ 18115.40

The cost assigned to total inventory using the specific identification method:

Using specific identification method closing inventory of 5 units will consist

  $\text{Ending inventory= 5}\times \$4,500=\$22,500$

Thus, cost assigned to ending inventory is $22,500.

4.

Summary Introduction

Introduction:

Inventory is a record of finished goods of a company which they can sell to the customer, work in progress which can be transformed into finish goods and raw material which is a means of production. Inventory is also classified as a current asset in the balance sheet and it is valued by FIFO LIFO and weighted average method.

To compute: The gross profit earn by the company is cost assigned to ending inventory for the company A using FIFO,LIFO and weighted average and specific identification.

Answer to Problem 1PSB

Gross using FIFO methods is $558,500, using LIFO method is $549,500, using weighted average method is $552,615, and specific identification method is $557,000.

Explanation of Solution

Particular	FIFO	LIFO	weighted average	Specific identification
Cost of goods available for sale	235500	235500	235500	235500
Less: closing stock 5 units	24000	15000	18115.40	22500
Cost of goods sold	211,500	220,500	217,385	213,000

Gross profit earn by the company:

Particular	FIFO method	LIFO method	Weighted average method	Specific identification method
Total Sales	$770,000	$770,000	$770,000	$770,000
Less: Cost of goods sold	211,500	220,500	217,385	213,000
Total	$558,500	$549,500	$552,615	557,000

Thus, gross using FIFO methods is $558,500, using the LIFO method is $549,500, using the weighted average method is $552,615, and the specific identification method is $557,000.