Question

The following information applies to the questions displayed below.]

Warnerwoods Company uses a perpetual inventory system. It entered into the following purchases and sales transactions for March.

Date

Activities

Units Acquired at Cost

Units Sold at Retail

Mar.

1

Beginning inventory

150

units

@ $52.00 per unit

Mar.

5

Purchase

250

units

@ $57.00 per unit

Mar.

9

Sales

310

units

@ $87.00 per unit

Mar.

18

Purchase

110

units

@ $62.00 per unit

Mar.

25

Purchase

200

units

@ $64.00 per unit

Mar.

29

Sales

180

units

@ $97.00 per unit

Totals

710

units

490

units

4. Compute gross profit earned by the company for each of the four costing methods. For specific identification, the March 9 sale consisted of 90 units from beginning inventory and 220 units from the March 5 purchase; the March 29 sale consisted of 70 units from the March 18 purchase and 110 units from the March 25 purchase. (Round weighted average cost per unit to two decimals and final answers to nearest whole dollar.)

Answer 1

Ans. A	FIFO Perpetual:
	Purchase				Cost of goods sold			Balance
	Date	Quantity	Rate	Total cost	Quantity	Rate	Total cost	Quantity	Rate	Total cost
	1-Mar	150	$52.00	$7,800.00				150	$52.00	$7,800.00
	5-Mar	250	$57.00	$14,250.00				150	$52.00	$7,800.00
								250	$57.00	$14,250.00
	9-Mar				150	$52.00	$7,800.00
					160	$57.00	$9,120.00	90	$57.00	$5,130.00
	18-Mar	110	$62.00	$6,820.00				90	$57.00	$5,130.00
								110	$62.00	$6,820.00
	25-Mar	200	$64.00	$12,800.00				90	$57.00	$5,130.00
								110	$62.00	$6,820.00
								200	$64.00	$12,800.00
	29-Mar				90	$57.00	$5,130.00
					90	$62.00	$5,580.00	20	$62.00	$1,240.00
								200	$64.00	$12,800.00
	Total				Cost of goods sold		$27,630	Ending inventory		$14,040
	*In FIFO method the units that have purchased first are released the first one.
Ans. B	Perpetual LIFO:
	Purchase				Cost of goods sold			Balance
	Date	Quantity	Rate	Total cost	Quantity	Rate	Total cost	Quantity	Rate	Total cost
	1-Mar	150	$52.00	$7,800.00				150	$52.00	$7,800.00
	5-Mar	250	$57.00	$14,250.00				150	$52.00	$7,800.00
								250	$57.00	$14,250.00
	9-Mar				250	$57.00	$14,250.00
					60	$52.00	$3,120.00	90	$52.00	$4,680.00
	18-Mar	110	$62.00	$6,820.00				90	$52.00	$4,680.00
								110	$62.00	$6,820.00
	25-Mar	200	$64.00	$12,800.00				90	$52.00	$4,680.00
								110	$62.00	$6,820.00
								200	$64.00	$12,800.00
	29-Mar				180	$64.00	$11,520.00	90	$52.00	$4,680.00
								110	$62.00	$6,820.00
								20	$64.00	$1,280.00
	Total				Cost of goods sold		$28,890	Ending inventory		$12,780
	*In LIFO method the units that have purchased last, are released the first one.
Ans. C		Weighted Average
	Purchase				Cost of goods sold			Balance
	Date	Quantity	Rate	Total cost	Quantity	Rate	Total cost	Quantity	Rate	Total cost
	1-Mar	150	$52.00	$7,800.00				150	$52.00	$7,800.00
	5-Mar	250	$57.00	$14,250.00				400	$55.13	$22,050.00
	9-Mar				310	$55.13	$17,090	90	$55.11	$4,960
	18-Mar	110	$62.00	$6,820.00				200	$58.90	$11,780
	25-Mar	200	$64.00	$12,800.00				400	$61.45	$24,580
	29-Mar				180	$61.45	$11,061	220	$61.45	$13,519
	Total				Cost of goods sold		$28,151	Ending inventory		$13,519
	*Weighted average rate is calculated by using the formula of (Total available balance / Total units available).
Ans. D	Specific Identification:
		Available for sale				Cost of goods sold			Ending inventory
	Purchase date	Activity	Units	Rate	Cost	Units	Rate	Cost	Units	Rate	Cost
	1-Mar	Beginning inventory	150	$52.00	$7,800.00	90	$52.00	$4,680	60	$52.00	$3,120.00
	5-Mar	Purchases	250	$57.00	$14,250.00	220	$57.00	$12,540	30	$57.00	$1,710.00
	18-Mar	Purchases	110	$62.00	$6,820.00	70	$62.00	$4,340	40	$62.00	$2,480.00
	25-Mar	Purchases	200	$64.00	$12,800.00	110	$64.00	$7,040	90	$64.00	$5,760.00
	Total					Cost of goods sold		$28,600	Ending inventory		$13,070.00
	Ending inventory units = No. of units available on particular date - No. of units sold on the same date.
Ans.			FIFO	LIFO	Weighted avg.	Specific identification
	Sales		$44,430	$44,430	$44,430	$44,430
	(-) Cost of goods sold		$27,630	$28,890	$28,151	$28,600
	Gross margin		$16,800	$15,540	$16,279	$15,830
	*Calculation of sales:
	Date	Units	Rate	Cost
	9-Mar	310	$87	$26,970
	29-Mar	180	$97	$17,460
	Total sales			$44,430