Chapter 6, Problem 3AP

a.

To determine

Calculate the company’s cost of goods sold and the ending inventory for the month of April 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 April using perpetual weighted average cost method.

Date		Purchased			Sold			Inventory Balance
		Quantity	Unit Cost ($)	Total Cost ($)	Quantity	Unit Cost ($)	Total Cost ($)	Quantity	Unit Cost ($)	Total Cost ($)
April	1							120	325.00	39,000
	9	40	345	13,800				160	330	52,800
	14				80	330	26,400	80	330	26,400
	23	20	350	7,000				100	334	33,400
	29				40	334	$13,360	60	334	$20,040

Table (1)

Working Notes:

Compute the weighted average cost of inventory after April 9 purchase:

$\begin{array}{c}\begin{array}{l}\text{Weighted average }\\ \text{cost on April 9 }\end{array}\}\text{= }\frac{\left(\begin{array}{l}\text{Total cost of units as on April 1 + }\\ \text{Total cost of units purchased on April 9}\end{array}\right)}{\left(\begin{array}{l}\text{Number of units as on April 1 + }\\ \text{Number of units purchased on April 9}\end{array}\right)}\\ =\frac{\text{\$39,000}\text{+ \$13,800}}{\text{120 units}\text{+ 40 units}}\\ =\frac{\text{\$52,800}}{\text{160 units}}\\ =\$330\end{array}$

Compute the weighted average cost of inventory after April 23 purchase:

$\begin{array}{c}\begin{array}{l}\text{Weighted average }\\ \text{cost on April 23 }\end{array}\}\text{= }\frac{\left(\begin{array}{l}\text{Total cost of units as on April 14 + }\\ \text{Total cost of units purchased on April 23}\end{array}\right)}{\left(\begin{array}{l}\text{Number of units as on April 14 + }\\ \text{Number of units purchased on April 23}\end{array}\right)}\\ =\frac{\text{\$26,400}\text{+ \$7,000}}{\text{80 units}\text{+ 20 units}}\\ =\frac{\text{\$33,400}}{\text{100 units}}\\ =\$334\end{array}$

Conclusion

Therefore, the value of cost of goods sold is $13,360 and ending inventory is $20,040.

b.

To determine

Calculate the company’s cost of goods sold and the ending inventory for the month of April 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 April using perpetual FIFO method.

Date		Purchased			Sold			Inventory Balance
		Quantity	Unit Cost ($)	Total Cost ($)	Quantity	Unit Cost ($)	Total Cost ($)	Quantity	Unit Cost ($)	Total Cost ($)
April	1							120	325	39,000
	9	40	345	13,800				120	325	39,000
								40	345	13,800
								160		52,800
	14				80	325	26,000	40	325	13,000
								40	345	13,800
								80		26,800
	23	20	350	7,000				40	325	13,000
								40	345	13,800
								20	350	7,000
								100		33,800
	29				40	325	13,000	40	345	13,800
								20	350	7,000
							$39,000	60		$20,800

Table (2)

Conclusion

Therefore, the value of cost of goods sold is $39,000 and ending inventory is $20,800.

c.

To determine

Calculate the company’s cost of goods sold and the ending inventory for the month of April 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 April using perpetual LIFO.

Date		Purchased			Sold			Inventory Balance
		Quantity	Unit Cost ($)	Total Cost ($)	Quantity	Unit Cost ($)	Total Cost ($)	Quantity	Unit Cost ($)	Total Cost ($)
April	1							120	325	39,000
	9	40	345	13,800				120	325	39,000
								40	345	13,800
								160		52,800
	14				40	345	23,800
					40	325	13,000	80	325	26,000
							36,800	80		26,000
	23	20	350	7,000				80	325	26,000
								20	350	7,000
								100		33,000
	29				20	350	7,000
					20	325	6,500	60	325	19,500
							$13,500	60		$19,500

Table (3)

Conclusion

Therefore, the value of cost of goods sold is $13,500 and ending inventory is $19,500.