Question

Montoure Company uses a perpetual inventory system. It entered into the following calendar-year purchases and sales transactions

Date

Activities

Units Acquired at Cost

Units Sold at Retail

Jan.

1

Beginning inventory

600

units

@ $60 per unit

Feb.

10

Purchase

480

units

@ $57 per unit

Mar.

13

Purchase

120

units

@ $42 per unit

Mar.

15

Sales

785

units

@ $80 per unit

Aug.

21

Purchase

180

units

@ $65 per unit

Sept.

5

Purchase

470

units

@ $63 per unit

Sept.

10

Sales

650

units

@ $80 per unit

Totals

1,850

units

1,435

units

Required:
1. Compute cost of goods available for sale and the number of units available for sale.

2. Compute the number of units in ending inventory.

3. Compute the cost assigned to ending inventory using (a) FIFO, (b) LIFO, (c) weighted average, and (d) specific identification. For specific identification, units sold consist of 600 units from beginning inventory, 380 from the February 10 purchase, 120 from the March 13 purchase, 130 from the August 21 purchase, and 205 from the September 5 purchase.

4. Compute gross profit earned by the company for each of the four costing methods. (Round your average cost per unit to 2 decimal places.)

5. The company’s manager earns a bonus based on a percent of gross profit. Which method of inventory costing produces the highest bonus for the manager?

Answer 1

Correct Answer:

Requirement 1:

Cost of Goods Available for sale	$              1,09,710
Number of units available for sale	1850 units

Working:

Cost of Goods Available for sale
	Units	Cost per unit	value
Beginning Inventory	600	$                     60.00	$                   36,000.0
Purchases	480	$                     57.00	$                   27,360.0
Purchases	120	$                     42.00	$                   5,040.00
Purchases	180	$                     65.00	$                   11,700.0
Purchases	470	$                     63.00	$                   29,610.0
Total	1850		$                   1,09,710

Requirement 2:

Units in ending inventory

415 units

Working:

units available for sale	1850 units
Less: Units sold	1435 units
Units in ending inventory	415 units

Requirement 3:

	Specific identification	FIFO	LIFO	Weighted Average
Cost of Ending Inventory	$                  25,645	$                  26,145	$                  24,900	$                       25,315

Working:

Specific Identifications	Cost of Goods Available for sale			Cost of goods sold			Ending Inventory
	No. of units	Cost per unit	Cost of goods available for sale	No. of units	Cost per unit	Cost of goods sold	No. of units	Cost per unit	Ending Inventory
Beginning inventory	600	$                60.00	$     36,000.00	600	$           60.00	$            36,000.00	0	$                     60.00	$                                -
Purchases:
10-Feb	480	$                57.00	$     27,360.00	380	$           57.00	$            21,660.00	100	$                     57.00	$                   5,700.00
13-Mar	120	$                42.00	$       5,040.00	120	$           42.00	$              5,040.00	0	$                     42.00	$                                -
21-Aug	180	$                65.00	$     11,700.00	130	$           65.00	$              8,450.00	50	$                     65.00	$                   3,250.00
05-Sep	470	$                63.00	$     29,610.00	205	$           63.00	$            12,915.00	265	$                     63.00	$                 16,695.00
Total	1850	$                       -	$ 1,09,710.00	1435		$            84,065.00	415		$                 25,645.00

	FIFO
A	Total Units Available for sale			1850			$            1,09,710
	Units Sold			1435
	Ending Inventory Units			415
	Valuation
	Cost of Goods Sold		600		$                         60.00		$         36,000.00
			480		$                         57.00		$               27,360
			120		$                         42.00		$            5,040.00
			180		$                         65.00		$         11,700.00
			55		$                         63.00		$            3,465.00
B	Cost of Goods Sold		1435	units			$               83,565
A-B	Ending Inventory		415	units			$               26,145

	LIFO
A	Total Units Available for sale			1850			$            1,09,710
	Units Sold			1435
	Ending Inventory Units			415
	Valuation
	Cost of Goods Sold		120		$                         42.00		5,040.00
			480		$                         57.00		27,360.00
			185		$                         60.00		11,100.00
			470		$                         63.00		29,610.00
			180		$                         65.00		11,700.00
B	Cost of Goods Sold		1435	units			$         84,810.00
A-B	Ending Inventory		415	units			$         24,900.00

	Weighted Average
A	Total Units Available for sale			1850			$      1,09,710.00
	Units Sold			1435
	Ending Inventory Units			415
	Valuation
	Cost of Goods Sold		785		$                       57.000		$         44,745.00
			650		$                       61.000		$         39,650.00
B	Cost of Goods Sold		1435	units			$         84,395.00
A-B	Ending Inventory		415	units			$         25,315.00

Requirement 4:

	FIFO	LIFO	Weighted Average	Specific identification
Gross Margin	$ 31,235	$ 29,990	$ 30,405	$ 30,735

Working:

		FIFO	LIFO	Weighted Average	Specific identification
A	Sales Revenue (1435 units * $ 80)	$                     1,14,800	$              1,14,800	$      1,14,800	$        1,14,800
B	Cost of goods sold	$                         83,565	$                  84,810	$          84,395	$            84,065
A-B	Gross Profit	$                         31,235	$                  29,990	$          30,405	$            30,735

Requirement 5:

FIFO method of the inventory costing will produce the highest bonus for the manager