Chapter 7, Problem 7.1AP

1. (a)

To determine

Compute the cost of goods available for sale.

Answer to Problem 7.1AP

Determine cost of goods available for sale.

Date	Particulars	Units ($)	Unit cost ($)	Total cost ($)
		(a)	(b)	(c = a × b)
January 1	Beginning inventory	390	32	12,480
February 20	Purchased	700	34.25	23,975
June 30	Purchased	460	37	17,020
	Total	1,550		$53,475
	Less: Goods sold	820
	Ending inventory	730

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 820 units of inventory is $53,475.

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	1,550	34.5	53,475
	Less: Ending inventory	730	34.5	25,185
	Cost of goods sold	820	34.5	$28,290

Table (2)

Working note:

Determine average unit cost.

$\begin{array}{c}\text{average}\text{unit}\text{cost}=\frac{\text{Cost}\text{of}\text{goods}\text{available}\text{for}\text{sale}}{\text{Total}\text{units}\text{available}\text{for}\text{sales}}\\ =\frac{\$53,475}{1,550}\\ =\$34.50\text{per unit}\end{array}$

Conclusion

Hence, the cost of goods sold under average-cost method is $28,290 and the value of ending inventory is $25,185.

2. (a)

To determine

Compute the cost of goods available for sale.

Answer to Problem 7.1AP

Determine cost of goods available for sale.

Date	Particulars	Units ($)	Unit cost ($)	Total cost ($)
		(a)	(b)	(c = a × b)
January 1	Beginning inventory	390	32	12,480
February 20	Purchased	700	34.25	23,975
June 30	Purchased	460	37	17,020
	Total	1,550		$53,475
	Less: Goods sold	820
	Ending inventory	730

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 820 units of inventory is $53,475.

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	390	32	12,480
February 20	Purchased	430	34.25	14,727.5
	Cost of goods sold	820		$27,207.5

Table (4)

Determine ending inventory under FIFO method.

Date	Particulars	Units	Unit cost ($)	Total cost ($)
		(a)	(b)	(c = a × b)
June 30	Purchased	460	37	17,020
February 20	Purchased	270	34.25	9,247.5
	Ending inventory	730		$26,267.5

Table (5)

Conclusion

Hence, the cost of goods sold under FIFO is $27,207.5 and the value of ending inventory is $26,267.5.

3. (a)

To determine

Compute the cost of goods available for sale.

Answer to Problem 7.1AP

Determine cost of goods available for sale.

Date	Particulars	Units ($)	Unit cost ($)	Total cost ($)
		(a)	(b)	(c = a × b)
January 1	Beginning inventory	390	32	12,480
February 20	Purchased	700	34.25	23,975
June 30	Purchased	460	37	17,020
	Total	1,550		$53,475
	Less: Goods sold	820
	Ending inventory	730

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 820 units of inventory is $53,475.

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)
June 30	Purchased	460	37	17,020
February 20	Purchased	360	34.25	12,330
	Cost of goods sold	820		$29,350

Table (7)

Determine ending inventory under LIFO method.

Date	Particulars	Units	Unit cost ($)	Total cost ($)
		(a)	(b)	(c = a × b)
January 1	Beginning inventory	390	32	12,480
February 20	Purchased	340	34.25	11,645
	Ending inventory	730		$24,125

Table (8)

Conclusion

Hence, the cost of goods sold under LIFO is $29,350 and the value of ending inventory is $24,125.

4. (a)

To determine

Compute the cost of goods available for sale.

Answer to Problem 7.1AP

Determine cost of goods available for sale.

Date	Particulars	Units ($)	Unit cost ($)	Total cost ($)
		(a)	(b)	(c = a × b)
January 1	Beginning inventory	390	32	12,480
February 20	Purchased	700	34.25	23,975
June 30	Purchased	460	37	17,020
	Total	1,550		$53,475
	Less: Goods sold	820
	Ending inventory	730

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 820 units of inventory is $53,475.

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)	28	32	896
January 1	Beginning inventory (3)	362	32	11,584
February 20	Purchased (2)	42	34.25	1,438.5
June 30	Purchased (4)	388	37	14,356
	Cost of goods sold	820		$28,274.5

Table (10)

Determine ending inventory under Specific identification method.

Date	Particulars	Units	Unit cost ($)	Total cost ($)
		(a)	(b)	(c = a × b)
February 20	Purchased	658	34.25	22,536.5
January 30	Purchased	72	37	2664
	Ending inventory	2,150		$25,200.5

Table (11)

Working note:

Determine the units of sale:

For first Sale:

 $\begin{array}{c}\text{Units of sale}=\text{Sales}\times \frac{\text{2}}{\text{5}}\\ =\text{70 Units}\times \frac{\text{2}}{\text{5}}\\ =28\text{ Units}\end{array}$ (1)

 $\begin{array}{c}\text{Units of sale}=\text{Sales}\times \frac{3}{\text{5}}\\ =70\text{ Units}\times \frac{3}{\text{5}}\\ =42\text{ Units}\end{array}$ (2)

For second Sale:

 $\begin{array}{c}\text{Units of sale for second sales}=\text{Remaining}\text{beginning}\text{inventory}\times \text{Unit cost}\\ =\left(390-28\right)\text{ Units}\times \$32\\ =362\text{ Units}\times \$32\\ =\$11,584\end{array}$ (3)

 $\begin{array}{c}\text{Units of sale for second sales}=\text{Remaining}\text{inventory}\times \text{Unit cost}\\ =\left(750-362\right)\text{ Units}\times \$37\\ =388\text{ Units}\times \$37\\ =\$14,356\end{array}$ (4)

Conclusion

Hence, the cost of goods sold under specific identification method is $28,274.5 and the value of ending inventory is $25,200.5.