Chapter 5, Problem 4PSB

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: Cost assigned to ending inventory and cost of goods sold using FIFO method.

Answer to Problem 4PSB

Cost of goods available for is $249,300 and number of units available for sale is 680

Explanation of Solution

Cost of goods available for sale and number of units available for sale is as follows:

Date	Particular	Units	Per unit cost	Total cost
1st May	Opening inventory	150	300	45000
6th May	Purchase	350	350	122500
17th May	Purchase	80	450	36000
25th May	purchase	100	458	45800
Total		680		249,300

Thus, cost of goods available for is $249,300 and number of units available for sale is 680

Thus the cost assigned to ending inventory under FIFO method is $88800.

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 calculate: Cost assigned to ending inventory and cost of goods sold using FIFO method.

Answer to Problem 4PSB

The number of units in ending inventory is 200 units

Explanation of Solution

The number of units in closing inventory is as follows:

  $\begin{array}{l}\text{Closing Units= Opening Units+ Units purchased - units sold}\\ \text{=150+(350+80+100)-(180+300)}\\ \text{= 200 units}\end{array}$

The number of units in ending inventory is 200 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: Cost assigned to ending inventory and cost of goods sold using LIFO method.

Answer to Problem 4PSB

Cost assigned to ending inventory under FIFO method is $88800, under LIFO method is $62500, using weighted average method is $75600, using specific identification method is $$74,500

Explanation of Solution

1. Cost assigned under FIFO method:

  

Thus the cost assigned to ending inventory under FIFO method is $88800.

2. LIFO method:

  

Thus the cost assigned to ending inventory under LIFO method is $62500.

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

Date	Particular	Unit	Cost per unit	Total	Balance inventory
					Units	Cost per unit	Total cost
1st May	Opening balance	150	300	45000	150	300	45000
6th may	Purchase	350	350	122500	500	335	167500
9th may	Sales	180	335	60300	320	335	107200
17th may	Purchase	80	450	3600	400	358	143200
25th may	Purchase	100	458	45800	500	378	189000
30th may	Sales	300	378	113400	200	378	75600

Thus, cost assigned to ending inventory using weighted average method is $75600

2. Cost assigned to total inventory using specific identification method:

Using specific identification method closing inventory will consist

Particular	Units	Per unit ($)	Amount ($)
Opening Inventory	70	300	21000
6th May	50	350	17500
17th May	80	450	36000
Total			$74,500

Thus, cost assigned to ending inventory using specific identification method is $$74,500

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 4PSB

Gross using FIFO methods is $636000 , using LIFO method is $449200, using weighted average method is $460024, and specific identification method is $461200.

Explanation of Solution

Gross profit earn by the company:

Cost of Goods sold:

  $\text{Cost of goods sold= Cost of goods available for sales- ending inventory}$

For FIFO method

  $\begin{array}{l}\text{Cost of goods sold= Cost of goods available for sales- ending inventory}\\ \text{=}\begin{array}{l}249,300\hfill \end{array}-88800\\ =\$160500\end{array}$

For LIFO methods

  $\begin{array}{l}\text{Cost of goods sold= Cost of goods available for sales- ending inventory}\\ \text{=}\begin{array}{l}249,300\hfill \end{array}-62500\\ =\$186800\end{array}$

For weighted average method:

  $\begin{array}{l}\text{Cost of goods sold= Cost of goods available for sales- ending inventory}\\ \text{=}\begin{array}{l}249,300\hfill \end{array}-\$75600\\ =\$173700\end{array}$

For specific identification:

  $\begin{array}{l}\text{Cost of goods sold= Cost of goods available for sales- ending inventory}\\ \text{=}\begin{array}{l}249,300\hfill \end{array}-74,500\\ =\$174,800\end{array}$

Particular	FIFO method	LIFO method	Weighted average method	Specific identification method
Total Sales	$636000	$636000	$636000	$636000
Cost of goods sold	$160500	$186800	$173700	$174800
Total	$475,500	$449200	$462300	$461200

Thus, gross using FIFO methods is $636000 , using LIFO method is $449200, using the weighted average method is $460024, and specific identification method is $461200.

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 4PSB

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

Explanation of Solution

FIFO method yield $475,500 gross profit which highest among other methods. So, the manager will prefer FIFO method for costing inventory as gross profit is highest in the FIFO method so using this method manager will earn more bonuses.