Chapter 7, Problem 2P

1. (a)

To determine

Compute the cost of goods available for sale.

Answer to Problem 2P

Determine cost of goods available for sale.

Date	Particulars	Units ($)	Unit cost ($)	Total cost ($)
		(a)	(b)	(c = a × b)
January 1	Beginning inventory	400	3	1,200
January 30	Purchased	300	3.4	1,020
May 1	Purchased	460	4	1,840
	Total	1,160		$4,060
	Less: Goods sold	860
	Ending inventory	300

Table (1)

Explanation of Solution

Cost of goods sold:

Cost of goods sold is the accumulate total of all direct cost incurred in manufacturing the goods or the products which has been sold during a period. Cost of goods sold involves direct material, direct labor, and manufacturing overheads.

Conclusion

Therefore, the cost of goods sold available for sale for 300 units of inventory is $4,060.

1. (b) and (c)

To determine

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

Explanation of Solution

In Average Cost Method the cost of inventory is priced at the average rate of the goods available for sale. Following is the mathematical representation:

$\text{Average Cost}=\frac{\text{Total Cost of Goods Available For Sale}}{\text{Total Number of Units Available For Sale}}$

Determine cost of ending inventory under average-cost method.

Date	Particulars	Units	Unit cost ($)	Total cost ($)
		(a)	(b)	(c = a × b)
	Cost of goods available for sale	1,160	3.5	4,060
	Less: Ending inventory	300	3.5	1,050
	Cost of goods sold	860	3.5	$3,010

Table (2)

Working note:

Determine average unit cost.

$\begin{array}{c}\text{average}\text{unit}\text{cost}=\frac{\text{Cost}\text{of}\text{goods}\text{available}\text{for}\text{sale}}{\text{Total}\text{units}\text{available}\text{for}\text{sales}}\\ =\frac{\$4,060}{1,160}\\ =\$3.5\text{per unit}\end{array}$

Conclusion

Hence, the cost of goods sold under average-cost method is $3,010 and the value of ending inventory is $1,050.

2. (a)

To determine

Compute the cost of goods available for sale.

Answer to Problem 2P

Determine cost of goods available for sale.

Date	Particulars	Units ($)	Unit cost ($)	Total cost ($)
		(a)	(b)	(c = a × b)
January 1	Beginning inventory	400	3	1,200
January 30	Purchased	300	3.4	1,020
May 1	Purchased	460	4	1,840
	Total	1,160		$4,060
	Less: Goods sold	860
	Ending inventory	300

Table (3)

Explanation of Solution

Cost of goods sold:

Cost of goods sold is the accumulate total of all direct cost incurred in manufacturing the goods or the products which has been sold during a period. Cost of goods sold involves direct material, direct labor, and manufacturing overheads.

Conclusion

Therefore, the cost of goods sold available for sale for 300 units of inventory is $4,060.

2. (b) and (c)

To determine

Compute the ending inventory and the cost of goods sold under FIFO.

Explanation of Solution

In First-in-First-Out method, the cost of initial purchased items is sold first. The value of the ending inventory consist the recent purchased items.

Determine the amount of cost of goods sold.

Date	Particulars	Units	Unit cost ($)	Total cost ($)
		(a)	(b)	(c = a × b)
January 1	Beginning inventory	400	3	1,200
January 30	Purchased	300	3.4	1,020
May 1	Purchased	160	4	640
	Cost of goods sold	3,350		$2,860

Table (4)

Determine ending inventory under FIFO method.

Date	Particulars	Units	Unit cost ($)	Total cost ($)
		(a)	(b)	(c = a × b)
May 1	Purchased	300	4	1,200
	Ending inventory	300		$1,200

Table (5)

Conclusion

Hence, the cost of goods sold under FIFO is $2,860 and the value of ending inventory is $1,200.

3. (a)

To determine

Compute the cost of goods available for sale.

Answer to Problem 2P

Determine cost of goods available for sale.

Date	Particulars	Units ($)	Unit cost ($)	Total cost ($)
		(a)	(b)	(c = a × b)
January 1	Beginning inventory	400	3	1,200
January 30	Purchased	300	3.4	1,020
May 1	Purchased	460	4	1,840
	Total	1,160		$4,060
	Less: Goods sold	860
	Ending inventory	300

Table (6)

Explanation of Solution

Cost of goods sold:

Cost of goods sold is the accumulate total of all direct cost incurred in manufacturing the goods or the products which has been sold during a period. Cost of goods sold involves direct material, direct labor, and manufacturing overheads.

Conclusion

Therefore, the cost of goods sold available for sale for 300 units of inventory is $4,060.

3. (b) and (c)

To determine

Compute the ending inventory and the cost of goods sold under LIFO.

Explanation of Solution

In Last-in-First-Out method, the cost of last purchased items is sold first. The value of the closing stock consist the initial purchased items.

Determine the amount of cost of goods sold.

Date	Particulars	Units	Unit cost ($)	Total cost ($)
		(a)	(b)	(c = a × b)
May 1	Purchased	460	4	1,840
January 30	Purchased	300	3.4	1,020
January 1	Beginning inventory	100	3	300
	Cost of goods sold	860		$3,160

Table (7)

Determine ending inventory under LIFO method.

Date	Particulars	Units	Unit cost ($)	Total cost ($)
		(a)	(b)	(c = a × b)
January 1	Beginning inventory	300	3	900
	Ending inventory	300		$900

Table (8)

Conclusion

Hence, the cost of goods sold under LIFO is $3,160 and the value of ending inventory is $900.

4. (a)

To determine

Compute the cost of goods available for sale.

Answer to Problem 2P

Determine cost of goods available for sale.

Date	Particulars	Units ($)	Unit cost ($)	Total cost ($)
		(a)	(b)	(c = a × b)
January 1	Beginning inventory	400	3	1,200
January 30	Purchased	300	3.4	1,020
May 1	Purchased	460	4	1,840
	Total	1,160		$4,060
	Less: Goods sold	860
	Ending inventory	300

Table (9)

Explanation of Solution

Cost of goods sold:

Cost of goods sold is the accumulate total of all direct cost incurred in manufacturing the goods or the products which has been sold during a period. Cost of goods sold involves direct material, direct labor, and manufacturing overheads.

Conclusion

Therefore, the cost of goods sold available for sale for 300 units of inventory is $4,060.

4. (b) and (c)

To determine

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

Explanation of Solution

Specific identification method can be said as identifying the items precisely which are being sold and those which are being stored as closing inventory. The companies are required to keep perfect records of the original cost of each and every individual items of the inventory.

Determine the amount of cost of goods sold.

Date	Particulars	Units	Unit cost ($)	Total cost ($)
		(a)	(b)	(c = a × b)
January 1	Beginning inventory (1)	64	3	192
January 1	Beginning inventory (3)	336	3	1,008
January 30	Purchased (2)	96	3.4	326.4
May 1	Purchased (4)	364	4	1,456
	Cost of goods sold	3,350		$2,982.4

Table (10)

Determine ending inventory under Specific identification method.

Date	Particulars	Units	Unit cost ($)	Total cost ($)
		(a)	(b)	(c = a × b)
May 1	Purchased	96	4	384
January 30	Purchased	204	3.4	693.6
	Ending inventory	2,150		$1,077.6

Table (11)

Working note:

Determine the units of sale:

For first Sale:

 $\begin{array}{c}\text{Units of sale}=\text{Sales}\times \frac{\text{2}}{\text{5}}\\ =\text{160 Units}\times \frac{\text{2}}{\text{5}}\\ =\text{64 Units}\end{array}$ (1)

 $\begin{array}{c}\text{Units of sale}=\text{Sales}\times \frac{3}{\text{5}}\\ =\text{160 Units}\times \frac{3}{\text{5}}\\ =96\text{ Units}\end{array}$ (2)

For second Sale:

 $\begin{array}{c}\text{Units of sale for second sales}=\text{Remaining}\text{beginning}\text{inventory}\times \text{Unit cost}\\ =\left(400-64\right)\text{ Units}\times \$3\\ =336\text{ Units}\times \$3\\ =\$1,008\end{array}$ (3)

 $\begin{array}{c}\text{Units of sale for second sales}=\text{Remaining}\text{inventory}\times \text{Unit cost}\\ =\left(700-336\right)\text{ Units}\times \$4\\ =364\text{ Units}\times \$4\\ =\$1,456\end{array}$ (4)

Conclusion

Hence, the cost of goods sold under specific identification method is $2,982.4 and the value of ending inventory is $1,077.6.