Chapter 5, Problem 3PSA

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 3PSA

The total cost of goods available for sale is $249300 and the total number of goods available for sale is 680 units

Explanation of Solution

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

Date	Particular	Unit	Rate ($)	Total Cost ($)
1st Jan	Opening inventory	600	45	27000
10thFeb	Purchases	400	42	16800
13th March	Purchases	200	27	5400
21st August	Purchases	100	50	5000
5th Sept	Purchase	500	46	23000
Total		1800		77200

So, the total cost of goods available for sale is $77200 and the total number of goods available for sale is 1800 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 A.

Answer to Problem 3PSA

The number of units in ending inventory is 400 units.

Explanation of Solution

The number of units in closing inventory is as follows:

  $\begin{array}{l}\text{Closing Units= Opening Units+ Units purchased - units sold}\\ \text{=600+400+200+100+500-800+600}\\ \text{= 400}\end{array}$

The number of units in ending inventory is 400 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 A using FIFO,LIFO and weighted average and specific identification.

Answer to Problem 3PSA

cost assigned to ending inventory using FIFO is $18,400, using LIFO is $18,000, using weighted average method is $ 17156 and using specific identification method is $18,200.

Explanation of Solution

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

Using FIFO method closing inventory of 400 units will consist:

Particular	Units	Per unit ($)	Amount ($)
5th September	400	46	18,400
Total			18,400

  $\begin{array}{l}\text{Cost of goods sold= Cost of goods available for sales- ending inventory}\\ =\$77200-18400\\ =\$58800.\end{array}$

Thus, the cost assigned to ending inventory is $18,400 and the cost of goods sold is $58800 using FIFO.

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

Using the LIFO method closing inventory of 200 units will consist

Particular	Units	Per unit ($)	Amount ($)
1st Jan	400	45	18,000
Total			$18,000

  $\begin{array}{l}\text{Cost of goods sold= Cost of goods available for sales- ending inventory}\\ \text{=77200-18000= \$58800}\\ .\end{array}$

Thus, the cost of assigned to ending inventory is $18,000 cost of goods sold $58,800 using the LIFO method.

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

The weighted average cost is calculated as:

$=\frac{\text{Total cost of goods available for sale}}{\text{Number of unit available}}$

  $=\frac{77200}{1800}=\$42.89$

The total cost 400 units are:

  $400\times \$42.89=17156$

  $\begin{array}{l}\text{Cost of goods sold= Cost of goods available for sales- ending inventory}\\ \text{=}\begin{array}{l}\text{77200}\hfill \end{array}-17156\\ =\$60044\end{array}$

Thus, cost assigned to ending inventory $ 17156 and cost of goods sold is $60044 using weighted average method.

4. Cost assigned to total inventory using the specific identification method:

Using specific identification method closing inventory of 400 units will consist

Particular	Units	Per unit ($)	Amount ($)
10th Feb	100	42	4200
21st Aug	50	50	2500
5th Sept	250	46	11500
Total			$18200

  $\begin{array}{l}\text{Cost of goods sold= Cost of goods available for sales- ending inventory}\\ \text{=77,200}-18,200\\ =\$59,000\end{array}$

Thus, cost assigned to ending inventory is $18,200 and cost of goods sold is $59,000 using specific identification method.

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 3PSA

Gross using FIFO methods is $46200 , using LIFO method is $45800, using weighted average method is $44956, and specific identification method is $46000.

Explanation of Solution

Total sales

Particular	Units	Per unit cost	Amount
15th March	800	75	60000
10th Sept	600	75	45000
Total	1400		105000

Gross profit earn by the company:

Particular	FIFO method	LIFO method	Weighted average method	Specific identification method
Total Sales	$105000	$105000	$105000	$105000
Cost of goods sold	$58800	$59200	$60044	$59,000
Total	$46,200	$45,800	$44,956	$46000

Thus, gross using FIFO methods is $46200 , using LIFO method is $45800, using weighted average method is $44956, and specific identification method is $46000.

5.

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 3PSA

The manager will prefer a Specific identification method for costing inventory as gross profit is highest in Specific identification method so using this method manager will earn more bonuses.

Explanation of Solution

Specific identification method yield $46,000 gross profit which highest among other methods. So, the manager will prefer a Specific identification method for costing inventory as gross profit is highest in the Specific identification method so using this method manager will earn more bonuses.