Chapter 6, Problem 10BP

a.

To determine

Calculate the company’s cost of goods sold and the ending inventory for the month of June using weighted-average inventory costing method - Perpetual inventory system.

Explanation of Solution

Perpetual Inventory System refers to the inventory system that maintains the detailed records of every inventory transactions related to purchases and sales on a continuous basis. It shows the exact on-hand-inventory at any point of time.

Weighted-average cost method: In moving-average Cost Method, the cost of inventory is priced at the average rate of the goods available for sale. Following is the mathematical representation:

$\text{Weighted-average Cost}=\frac{\text{Total Cost of Goods Available For Sale}}{\text{Total Number of Units Available For Sale}}$

Compute the cost of goods sold and the ending inventory cost for the month of June using perpetual weighted average cost method.

Date		Purchased			Sold			Inventory Balance
		Quantity	Unit Cost ($)	Total Cost ($)	Quantity	Unit Cost ($)	Total Cost ($)	Quantity	Unit Cost ($)	Total Cost ($)
June	1							60	45	2,700
	5	40	50	2,000				100	47	4,700
	13				50	47	2,350	50	47	2,350
	25	30	53	1,590				80	49.25	3,940
	29				20	49.25	$985	60	49.25	$2,955

Table (1)

Working Notes:

Compute the weighted average cost of inventory after April 9 purchase

$\begin{array}{c}\begin{array}{l}\text{Weighted average }\\ \text{cost on June 5 }\end{array}\}\text{= }\frac{\left(\begin{array}{l}\text{Total cost of units as on June 1 + }\\ \text{Total cost of units purchased on June 5}\end{array}\right)}{\left(\begin{array}{l}\text{Number of units as on June 1 + }\\ \text{Number of units purchased on June 5}\end{array}\right)}\\ =\frac{\text{\$2,700}\text{+ \$2,000}}{\text{60 units}\text{+ 40 units}}\\ =\frac{\text{\$4,700}}{\text{100 units}}\\ =\$47\end{array}$

Compute the weighted average cost of inventory after June 25 purchase.

$\begin{array}{c}\begin{array}{l}\text{Weighted average }\\ \text{cost on June 25 }\end{array}\}\text{= }\frac{\left(\begin{array}{l}\text{Total cost of units as on June 13 + }\\ \text{Total cost of units purchased on June 25}\end{array}\right)}{\left(\begin{array}{l}\text{Number of units as on June 13 + }\\ \text{Number of units purchased on June 25}\end{array}\right)}\\ =\frac{\text{\$2,350}\text{+ \$1,590}}{\text{50 units}\text{+ 30 units}}\\ =\frac{\text{\$3,940}}{\text{80 units}}\\ =\$49.25\end{array}$

Conclusion

Therefore, the value of cost of goods sold is $985 and ending inventory is $2,955.

b.

To determine

Calculate the company’s cost of goods sold and the ending inventory for the month of June using FIFO costing method - Perpetual inventory system.

Explanation of Solution

First-in-First-Out: In First-in-First-Out method, the costs of the initially purchased items are considered as cost of goods sold, for the items which are sold first. The value of the ending inventory consists of the recent purchased items.

Compute the cost of goods sold and the ending inventory cost for the month of June using perpetual FIFO.

Date		Purchased			Sold			Inventory Balance
		Quantity	Unit Cost ($)	Total Cost ($)	Quantity	Unit Cost ($)	Total Cost ($)	Quantity	Unit Cost ($)	Total Cost ($)
June	1							60	45	2,700
	5	40	50	2,000				60	45	2,700
								40	50	2,000
								100		4,700
	13				50	45	2,250	10	45	450
								40	50	2,000
								50		2,450
	25	30	53	1,590				10	45	450
								40	50	2,000
								30	53	1,590
								80		4,040
	29				10	45	450
					10	50	500	30	50	1,500
								30	53	1,590
							$950	60		$3,090

Table (2)

Conclusion

Therefore, the value of cost of goods sold is $950 and ending inventory is $3,090.

c.

To determine

Calculate the company’s cost of goods sold and the ending inventory for the month of June using LIFO costing method - Perpetual inventory system.

Explanation of Solution

Last-in-Last-Out: In Last-in-First-Out method, the costs of last purchased items are considered as the cost of goods sold, for the items which are sold first. The value of the closing stock consists of the initial purchased items.

Compute the cost of goods sold and the ending inventory cost for the month of June using perpetual LIFO.

Date		Purchased			Sold			Inventory Balance
		Quantity	Unit Cost ($)	Total Cost ($)	Quantity	Unit Cost ($)	Total Cost ($)	Quantity	Unit Cost ($)	Total Cost ($)
June	1							60	45	2,700
	5	40	50	2,000				60	45	2,700
								40	50	2,000
								100		4,700
	13				40	50	2,000
					10	45	450	50	45	2,250
							2,450	50		2,250
	25	30	53	1,590				50	45	2,250
								30	53	1,590
								80		3,840
	29				20	53	1,060	50	45	2,250
								10	53	530
							$1,060	60		$2,780

Table (3)

Conclusion

Therefore, the value of cost of goods sold is $1,060 and ending inventory is $2,780.