Chapter 6, Problem 3PSB

To determine

Perpetual Inventory system is an inventory system in which a organization continuously update its inventory records. All the movements related to inventory are updated continuously such as purchase quantity, sales quantity, and purchase or sales return etc.

There are several methods of calculating the value of inventory in closing stock which are as below:

FIFO method (First In First Out) is the most using method of inventory valuation. The quantity which comes first in stock will be sold first. In closing inventory the quantity will be counted from the last purchase and so on.

LIFO method (Last In First Out) is the method in which the quantity which purchase in last before sale transaction will be sold first. In closing inventory the quantity will be counted from the beginning inventory and purchase thereafter.

Weighted Average method is the most commonly used method after FIFO method. In weighted average the quantity of all purchases and beginning inventory is clubbed and then a weighted average rate is calculated and closing inventory is valued at weighted average rate.

Specific Identification method is the method in which the quantity is specifically identified that from which lot or purchases the closing stock is available and the closing inventory is valued by taking rates and quantities of that specific lot(s) from which closing inventory is available.

Under perpetual method a job card is prepared for each lot and calculation is done for each lot/transactions accordingly.

Requirement-1:

To Calculate:

In the given question we have to calculate the following details under perpetual inventory system:

1. Cost of goods and quantity available for sale

Requirement-2:

To determine

To calculate:

We have to calculate units in closing stock under perpetual inventory system.

Requirement-3:

To determine

To calculate:

We have to calculate cost of closing inventory using FIFO, LIFO, Weighted Average and Specific Identification method.

Requirement-4:

To determine

To calculate:

We have to calculate gross profit under FIFO, LIFO, and Weighted Average and Specific Identification method under perpetual inventory system.

Requirement-5:

To determine

We have to determine that manager will prefer valuation method as it earns on percentage of gross profit.