Concept explainers
1.
Compute cost of goods available for sale and the number of units available for sale.
1.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Calculate cost of goods available for sale and the number of units available for sale.
Cost of Goods Available For Sale | ||||
Date | Particulars | Units (A) | Per Unit (B) | Amount (A× B) |
May 1 | Beginning Inventory | 150 | $300 | $45,000 |
May 6 | Purchase | 350 | $350 | $122,500 |
May 17 | Purchase | 80 | $450 | $36,000 |
May 25 | Purchase | 100 | $458 | $45,800 |
Total | 680 | $249,300 |
Table (1)
Therefore, total cost of goods available for sale amount is $249,300, and the number of units available for sale is 680 units.
2.
Compute the number of units in ending inventory.
2.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Calculate number of units in ending inventory as follows:
Working note:
Calculate cost of goods sold.
3.
Compute the cost assigned to ending inventory using the following methods:
- (a) FIFO
- (b) LIFO
- (c) Weighted average, and
- (d) Specific identification.
3.
![Check Mark](/static/check-mark.png)
Explanation of Solution
(a)
Compute the cost assigned to ending inventory using FIFO method as follows:
Date | Particulars | Units (A) | Per Unit (B) | Amount (A× B) |
May 25 | Ending Inventory | 100 | $458 | $45,800 |
May 17 | Ending Inventory | 80 | $450 | $36,000 |
May 6 | Ending Inventory | 20 | $350 | $7,000 |
Total Ending inventory | 200 | $88,800 |
Table (2)
(b)
Compute the cost assigned to ending inventory using LIFO method as follows:
Date | Particulars | Units (A) | Per Unit (B) | Amount (A× B) |
May 1 | Ending Inventory | 150 | $300 | $45,000 |
May 6 | Ending Inventory | 50 | $350 | $17,500 |
Total Ending inventory | 200 | $62,500 |
Table (3)
(c)
Compute the cost assigned to ending inventory using weighted average method as follows:
Working note:
Calculate weighted average per unit.
(d)
Compute the cost assigned to ending inventory using specific identification method as follows:
Date | Particulars | Units (A) | Per Unit (B) | Amount (A× B) |
May 1 | Ending Inventory | 70 | $300 | $21,000 |
May 6 | Ending Inventory | 50 | $350 | $17,500 |
May 17 | Ending Inventory | 80 | $450 | $36,000 |
Total Ending inventory | 400 | $74,500 |
Table (4)
4.
Compute gross profit earned by the company for each of the four costing methods in part 3.
4.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Calculate gross profit earned by the company for each of the four costing methods as follows:
Particulars | FIFO | LIFO | Weighted Average | Specific Identification |
Sales | $636,000 | $636,000 | $636,000 | $636,000 |
Less: Cost of goods sold | $160,500 | $186,800 | $175,976 | $174,800 |
Gross profit | $475,500 | $449,200 | $460,024 | $461,200 |
Table (5)
Working notes:
Calculate sales amount.
Calculate cost of goods sold.
Particulars | FIFO | LIFO | Weighted Average | Specific Identification |
Cost of goods available for sale | $249,300 | $249,300 | $249,300 | $249,300 |
Less: Ending Inventory | $88,800 | $62,500 | $73,324 | $74,500 |
Cost of goods sold | $160,500 | $186,800 | $175,976 | $174,800 |
Table (6)
5.
Identify the method of inventory costing which the manager will prefer, if he earns a bonus based on a percentage of gross profit.
5.
![Check Mark](/static/check-mark.png)
Explanation of Solution
The Manger would prefer a FIFO method, because comparing to all four methods FIFO method only giving more income. If he prefers, FIFO method means, he will get a bonus based on a percentage of gross profit.
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Chapter 5 Solutions
FINANCIAL ACCOUNTING ACCT 2301 >IC<
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education
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