Chapter 6, Problem 3BP

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	40	2,400
	5	40	50	2,000				100	44	4,400
	13				50	44	2,200	50	44	2,200
	25	30	52	1,560				80	47	3,760
	29				20	47	$940	60	47	$2,820

Table (1)

Working Notes:

Compute the weighted average cost of inventory after April 9 purchase

$\begin{array}{l}\text{Weighted average }\\ \text{cost on June 5 }\end{array}\}\text{= }\frac{\left(\begin{array}{l}\text{Total cost of units as on June 1 + }\\ \text{Total cost of units purchased on June 5}\end{array}\right)}{\left(\begin{array}{l}\text{Number of units as on June 1 + }\\ \text{Number of units purchased on June 5}\end{array}\right)}$

$\begin{array}{c}=\frac{\text{\$2,400}\text{+ \$2,000}}{\text{60 units}\text{+ 40 units}}\\ =\frac{\text{\$4,400}}{\text{100 units}}\\ =\$44\end{array}$

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

$\begin{array}{l}\text{Weighted average }\\ \text{cost on June 25 }\end{array}\}\text{= }\frac{\left(\begin{array}{l}\text{Total cost of units as on June 13 + }\\ \text{Total cost of units purchased on June 25}\end{array}\right)}{\left(\begin{array}{l}\text{Number of units as on June 13 + }\\ \text{Number of units purchased on June 25}\end{array}\right)}$

$\begin{array}{c}=\frac{\text{\$2,200}\text{+ \$1,560}}{\text{50 units}\text{+ 30 units}}\\ =\frac{\text{\$3,760}}{\text{80 units}}\\ =\$47\end{array}$

Conclusion

Therefore, the value of cost of goods sold is $940 and ending inventory is $2,820.

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	40	2,400
	5	40	50	2,000				60	40	2,400
								40	50	2,000
								100		4,400
	13				50	40	2,000	10	40	400
								40	50	2,000
								50		2,400
	25	30	52	1,560				10	40	400
								40	50	2,000
								30	52	1,560
								80		3,960
	29				10	40	400
					10	50	500	30	50	1,500
								30	52	1,560
							$900	60		$3,060

Table (2)

Conclusion

Therefore, the value of cost of goods sold is $900 and ending inventory is $3,060.

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	40	2,400
	5	40	50	2,000				60	40	2,400
								40	50	2,000
								100		4,400
	13				40	50	2,000
					10	40	400	50	40	2,000
							2,400	50		2,000
	25	30	52	1,560				50	40	2,000
								30	52	1,560
								80		3,560
	29				20	52	1,040	50	40	2,000
								10	52	520
							$1,040	60		$2,520

Table (3)

Conclusion

Therefore, the value of cost of goods sold is $1,040 and ending inventory is $2,520.