Chapter 6, Problem 1APSA

To determine

Requirement1:

Concept Introduction:

Goods available for sale:

The Goods available for sale means that the total goods in hand which can be offered to the customers for sale. This can be expressed in terms of dollars and units. The Total Goods in hand can be computed as a sum of inventory in hand in the beginning of the period and Inventories purchased during the period.

To Determine: TheCost and number of units available for sale.

Explanation of Solution

TheCost of goods available for sale is computed by adding up the cost of goods in hand in the beginning of the period and cost of inventory purchased during the period. And the number of units available f or sale is computed as on the same lines but in units terms.

Cost and Units of Goods available for sale:
DATE	UNITS	RATE	AMOUNT $
Mar 1: Beg. Inventory	100	50	5000
Purchases
5-Mar	400	55	22000
18-Mar	120	60	7200
25-Mar	200	62	12400
Goods Available for sale	820		46600

To determine

Requirement2:

Ending Inventory:

Ending Inventory units means the number of units left over from the total goods available for sale after units sold deducted from it.

To determine: The Number of Ending Inventory Units.

Explanation of Solution

The ending Inventory units is a difference between units of goods available for sale and units sold and has been computed as under:

Ending Inventory Units:
	UNITS
Units available for sale	820
Less: Units sold
Mar-9 Sales	420
Mar-29 Sales	160
Ending Inventory Units:	240

To determine

Requirement3-a:

First in First Out: The first in first out method of assigning the cost to goods sold is based on the principle that the goods that are entered first in the store room shall be issued first for sale and hence the cost shall be recorded at its initial prices of goods entered in store room. The perpetual Inventory system means the records are maintained on a continuous basis.

To determine: The Cost assigned to ending Inventory under FIFO.

Explanation of Solution

The FIFO method of perpetual inventory suggests that the goods issued for sale on a particular date shall be assigned cost on the basis of cost of oldest material lies in the store on that particular date.

The Ending Inventory shall be computed as under:

STATEMENT SHOWING INVENTORY RECORD UNDER PERPETUAL FIFO METHOD
	RECIEPTS			COST OF GOODS SOLD			BALANCE
DATE	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $
1-Mar							100	50	5000
5-Mar	400	55	22000				100	50	5000
							400	55	22000
9-Mar				100	50	5000
				320	55	17600	80	55	4400
18-Mar	120	60	7200				80	55	4400
							120	60	7200
25-Mar	200	62	12400				80	55	4400
							120	60	7200
							200	62	12400
29-Mar				80	55	4400	40	60	2400
				80	60	4800	200	62	12400
TOTAL	720		41600	580		31800	240		14800

Therefore, Ending Inventory is 240 units of $14800.

To determine

Requirement3-b:

Last in First Out: The Last in first out method of assigning the cost to goods sold is based on the principle that the goods that are entered recently in the store room shall be issued first for sale and hence the cost shall be recorded at its recent prices of goods entered in store room. The perpetual Inventory system means the records are maintained on a continuous basis.

To determine: The Cost assigned to ending Inventory under LIFO.

Explanation of Solution

The LIFO method of perpetual inventory suggests that the goods issued for sale on a particular date shall be assigned cost on the basis of cost of newest material lies in the store on that particular date.

The Ending Inventory shall be computed as under:

STATEMENT SHOWING INVENTORY RECORD UNDER PERPETUAL LIFO METHOD
	RECIEPTS			COST OF GOODS SOLD			BALANCE
DATE	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $
1-Mar							100	50	5000
5-Mar	400	55	22000				100	50	5000
							400	55	22000
9-Mar				400	55	22000
				20	50	1000	80	50	4000
18-Mar	120	60	7200				80	50	4000
							120	60	7200
25-Mar	200	62	12400				80	50	4000
							120	60	7200
							200	62	12400
29-Mar				160	62	9920	80	50	4000
							120	60	7200
							40	62	2480
TOTAL	720		41600	580		32920	240		13680

Therefore, Ending Inventory is 240 units of $13680.

To determine

Requirement3-c:

Weighted Average: The Weighted Average method of issuing inventory is based on principle that the goods shall be issued at a average of prices of goods which are lying in the store room at the time of issuing for sale. The perpetual Inventory system means the records are maintained on a continuous basis.

To determine: The Cost assigned to ending Inventory under Weighted average.

Explanation of Solution

The Weighted Average method of perpetual inventory suggests that the goods issued for sale on a particular date shall be assigned cost on the basis of average cost of material lies in the store on that particular date.

The Ending Inventory shall be computed as under:

STATEMENT SHOWING INVENTORY RECORD UNDER PERPETUAL WEIGHTED AVERAGE METHOD
	RECIEPTS			COST OF GOODS SOLD			BALANCE
DATE	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $
1-Mar							100	50	5000
5-Mar	400	55	22000				100	50	5000
							400	55	22000
Average							500	54	27000
9-Mar				420	54	22680	80	54	4320
18-Mar	120	60	7200				80	54	4320
							120	60	7200
25-Mar	200	62	12400				80	54	4320
							120	60	7200
							200	62	12400
Average							400	59.8	23920
29-Mar				160	59.8	9568	240	59.8	14352
TOTAL	720		41600	580		32248	240	59.8	14352

Therefore, Ending Inventory is 240 units of $14,352.

To determine

Requirement3-d:

Specific Identification: Specific Identification method of assigning the cost to goods sold is based on the principle that the goods that have been issued for sale has been specifically identified to be issued from the particular lot of material. Therefore, the cost of that particular lot shall be assigned on the same. The perpetual Inventory system means the records are maintained on a continuous basis.

To determine: The Cost assigned to ending Inventory under Specific Identification.

Explanation of Solution

The Specific Identification method of perpetual inventory suggests that the goods issued for sale on a particular date shall be assigned cost on the basis of cost of material specifically identified as issued from the store on that particular date.

The Ending Inventory shall be computed as under:

STATEMENT SHOWING INVENTORY RECORD UNDER PERPETUAL SPECIFIC IDENTIFICATION METHOD
	RECIEPTS			COST OF GOODS SOLD			BALANCE
DATE	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $
1-Mar							100	50	5000
5-Mar	400	55	22000				100	50	5000
							400	55	22000
9-Mar				80	50	4000	20	50	1000
				340	55	18700	60	55	3300
18-Mar	120	60	7200				20	50	1000
							60	55	3300
							120	60	7200
25-Mar	200	62	12400				20	50	1000
							60	55	3300
							120	60	7200
							200	62	12400
29-Mar				40	60	2400	20	50	1000
				120	62	7440	60	55	3300
							80	60	4800
							80	62	4960
TOTAL	720		41600	580		32540	240		14060

Therefore, Ending Inventory is 240 units of $14060.

To determine

Requirement4:

Gross Profits: Gross Profits means excess of sales revenue over the cost of goods sold.

To determine:Gross profits earned by the company under various methods.

Explanation of Solution

The Gross profits is computed as a difference between the sales revenue and cost of goods sold as assigned under various methods and has been computed as under:

Statement showing Gross Profits earned:
				FIFO	LIFO	Weighted	Specific
						Average	Identification
Sales revenue:
9-Mar	420 units @ 85 per unit			35700	35700	35700	35700
29-Mar	160 units @ 95 per unit			15200	15200	15200	15200
Total sales revenue				50900	50900	50900	50900
Less: Cost of goods sold (as computed Above)				31800	32920	32248	32540
Gross Margin				19100	17980	18652	18360