Chapter 6, Problem 1PA

1.

To determine

Compute the ending inventory and cost of goods sold using the specific identification method.

Explanation of Solution

Specific identification method:

Specific identification method is a method in which the company records each item of the inventory at its original cost. Under this method, when the goods are sold, the company can easily identify the original costs at which they were purchased for. This method helps in arriving at the accurate cost of goods sold, and ending inventory.

Calculate the units of ending inventory.

Calculation of Ending Inventory
Details	Number of Units	Rate Per Unit ($)	Total Cost ($)
Beginning balance	6
Less: Sales - October 4	(4)
Balance	2
Less: Sales - October 13	(1)
Balance	1	900	900
Purchases:
October 10	5
Less: Sales - October 13	(2)
Less: Sales - October 28	(3)
Balance	0	910	0
Purchases:
October 20	4
Less: October 28	(4)
Balance	0	920
October 30	7	930	6,510
Ending Inventory			7,410

Table (1)

Therefore, the cost of Ending Inventory in specific identification method is $7,410.

Calculate the cost of goods sold:

Calculation of Cost of Goods Sold
Details	Number of Units	Rate Per Unit ($)	Total Cost ($)
October 1: Beginning balance	4	900	3,600
October 1: Beginning balance	1	900	900
October 10: Purchase	2	910	1,820
October 10: Purchase	3	910	2,730
October 20: Purchase	4	920	3,680
Cost of Goods Sold	14		12,730

Table (2)

Therefore, the Cost of Goods Sold in specific identification method is $12,730.

2.

To determine

Compute the ending inventory and cost of goods sold using the FIFO method.

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.

Calculate the total Cost and units of Goods Available for Sales.

Calculation of Goods Available for Sales
Details	Number of Units	Rate per unit ($)	Total Cost ($)
Beginning balance	6	900	5,400
Add: Purchases
October 10	5	910	4,550
October 20	4	920	3,680
October 30	7	930	6,510
Total Goods available for Sale	22		20,140

Table (3)

Calculate the units of ending inventory.

Calculation of Ending Inventory (Units)
Details	Number of Units	Number of Units
Beginning balance	6
Add: Purchases
October 10	5
October 20	4
October 30	7
Total Goods available for Sale		22
Less: Sales
October 4	4
October 13	3
October 28	7
Total Sales		(14)
Ending Inventory		8

Table (4)

Calculate the cost of ending inventory.

The ending inventory is 8 units.

Calculation of Cost of Ending Inventory
Details	Number of Units	Rate per Unit ($)	Total Cost ($)
October 20	1	920	920
October 30	7	930	6,510
Ending Inventory	8		7,430

Table (5)

In FIFO method the ending inventory comprises of the inventory purchased last, because the inventory purchased first were sold first.

Therefore, the cost of Ending Inventory in the FIFO is $7,430.

Cost of Goods Sold.

14 units are sold.

Calculation of Cost of Goods Sold
Details	Number of Units	Rate per Unit ($)	Total Cost ($)
Beginning Inventory	6	900	5,400
March 9 Purchase	5	910	4,550
March 22 Purchase	3	920	2,760
Cost of Goods Sold	14		12,710

Table (6)

As it is FIFO method the earlier purchased items will sell first.

Therefore, the Cost of Goods Sold in the FIFO Method is $12,710

3.

To determine

Compute the ending inventory and cost of goods sold using the LIFO method.

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.

Ending Inventory:

Calculate the cost of ending inventory.

Calculation of Cost of Ending Inventory
Details	Number of Units	Rate per Unit ($)	Total Cost ($)
Beginning Inventory	6	900	5,400
October 10	2	910	1,820
Ending Inventory	8		7,220

Table (7)

• The ending inventory is 8 units (Refer to Table 4).
• In LIFO method, the ending inventory comprises of the inventory purchased first, because the inventory purchased last were sold first.
• Therefore, the ending inventory of 8 units is from the beginning inventory.

Therefore, the cost of Ending Inventory in the LIFO method is $7,220.

Cost of Goods Sold:

Details	Number of Units	Rate per unit ($)	Total Cost ($)
October10 Purchase	3	910	2,730
October20 Purchase	4	920	3,680
October30 Purchase	7	930	6,510
Cost of Goods Sold	14	2,760	12,920

Table (8)

• 14 units are sold (Refer to Table 4).
• As it is LIFO method the recent purchased items will sell first.
• Hence, the cost of goods sold will be the recent purchased items.

Therefore, the Cost of Goods Sold in the LIFO Method is $12,920.

4.

To determine

Compute the ending inventory and cost of goods sold using the weighted-average method.

Explanation of Solution

Weighted-average cost method:

Under Weighted average cost method, the company calculates a new average cost after every purchase is made. It is determined by dividing the cost of goods available for sale by the units on hand.

Calculate the Weighted-average cost.

Total cost of goods available for sale = $20,140 (Refer to table - 3)

Total units of goods available for sale = 22 units (Refer to table - 3)

$\begin{array}{c}\begin{array}{l}\text{Weighted-average}\\ \text{Cost}\end{array}\}=\frac{\text{Total Cost of Goods Available For Sale}}{\text{Total number of units Available for Sale}}\\ =\frac{\$20,140}{\text{22 Units}}\\ =\$915.45\end{array}$ (1)

Calculate the amount of Ending Inventory.

Weighted- average cost per unit = $915.45 (1)

Number of units in ending inventory = 8 units (Refer to table - 4)

$\begin{array}{c}\text{Cost of Ending inventory}=\left(\begin{array}{l}\left(\begin{array}{l}\text{Number of units in}\\ \text{Ending inventory}\end{array}\right)\\ \times \text{Weighted-average cost per unit}\end{array}\right)\\ =8\text{units }\times \text{ \$915}\text{.45}\\ =\text{\$7,323}\text{.6}\end{array}$ (2)

Therefore, the cost of Ending Inventory in the Weighted-average-cost Method is $7,323.6.

Calculate the Cost of Goods Sold.

Weighted- average cost per unit= $915.45 (1)

Units sold = 14 units

$\begin{array}{c}\text{Cost of Goods Sold}=\left(\begin{array}{l}\text{Number of units Sold }\\ \times \text{Weighted-average cost per unit}\end{array}\right)\\ =14\text{ units}\times \text{\$915}\text{.45}\\ =\text{\$12,816}\text{.30}\end{array}$ (3)

Therefore, the Cost of goods sold in the Weighted-average-cost Method is $12,816.30.