Question

Problem 6-4AA Periodic: Alternative cost flows LO P3

Montoure Company uses a periodic 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

670

units

@ $70.00 per unit

Feb.

10

Purchase

435

units

@ $67.00 per unit

Mar.

13

Purchase

235

units

@ $52.00 per unit

Mar.

15

Sales

835

units

@ $100.00 per unit

Aug.

21

Purchase

170

units

@ $75.00 per unit

Sept.

5

Purchase

570

units

@ $71.00 per unit

Sept.

10

Sales

740

units

@ $100.00 per unit

Totals

2,080

units

1,575

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 670 units from beginning inventory, 265 from the February 10 purchase, 235 from the March 13 purchase, 85 from the August 21 purchase, and 320 from the September 5 purchase. (Round your average cost per unit to 2 decimal places. Round your final answers to the nearest whole dollar amount.)

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. Round your final answers to the nearest whole dollar amount.)

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?

• Specific Identification

• Weighted Average

• LIFO

• FIFO

Answer 1

Correct Answer:

1:

Number of units available for sale	$ 1,41,485
Cost of goods available for sale	2080 Units

Working:

Cost of Goods Available for sale
	No. of units	Cost per unit	Cost of goods available for sale
01-Jan	670.00	$                  70	$     46,900.00
Purchases
10-Feb	435.00	$                 67	$     29,145.00
13-Mar	235.00	$                  52	$     12,220.00
21-Aug	170.00	$                  75	$     12,750.00
05-Sep	570.00	$                  71	$     40,470.00
Total	2080	$                   -	$ 1,41,485.00

2:

Units in ending inventory

505

Working:

Number of units available for sale	2080
Less: Units sold	1575
Units in ending inventory	505

3:

	FIFO	LIFO	Weighted Average	Specific Identification
Cost assigned to Ending inventory	$     35,855	$          35,350	$     34,350.93	$      35,515

Working:

FIFO	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
01-Jan	670	$            70.00	$     46,900.00	670	$       70.00	$        46,900.00	0	$              70.00	$                      -
Purchases
10-Feb	435	$            67.00	$     29,145.00	435	$       67.00	$        29,145.00	0	$              67.00	$                      -
13-Mar	235	$            52.00	$     12,220.00	235	$       52.00	$        12,220.00	0	$              52.00	$                      -
21-Aug	170	$            75.00	$     12,750.00	170	$       75.00	$        12,750.00	0	$              75.00	$                      -
05-Sep	570	$            71.00	$     40,470.00	65	$       71.00	$          4,615.00	505	$              71.00	$       35,855.00
Total	2080		$ 1,41,485.00	1575		$    1,05,630.00	505		$       35,855.00

LIFO	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
01-Jan	670.00	70.00	$     46,900.00	165	$       70.00	$        11,550.00	505	$              70.00	$       35,350.00
Purchases
10-Feb	435.00	67.00	$     29,145.00	435	$       67.00	$        29,145.00	0	$              67.00	$                      -
13-Mar	235.00	52.00	$     12,220.00	235	$       52.00	$        12,220.00	0	$              52.00	$                      -
21-Aug	170.00	75.00	$     12,750.00	170	$       75.00	$        12,750.00	0	$              75.00	$                      -
05-Sep	570.00	71.00	$     40,470.00	570	$       71.00	$        40,470.00	0	$              71.00	$                      -
Total	2080		$ 1,41,485.00	1575		$    1,06,135.00	505		$       35,350.00

Weighted Average	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
01-Jan	670.00	70.00	$          46,900
Purchases
10-Feb	435.00	67.00	$           29,145
13-Mar	235.00	52.00	$           12,220
21-Aug	170.00	75.00	$           12,750
05-Sep	570.00	71.00	$           40,470
			$                    -	1575	68.02	$          1,07,134	505	$            68.022	$       34,350.93
Total	2080		$       1,41,485	1575		$          1,07,134	$               505		$             34,351

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
01-Jan	670.00	$                  70	$     46,900.00	670	$       70.00	$              46,900	0	$              70.00	$                      -
Purchases
10-Feb	435.00	$                  67	$     29,145.00	265	$       67.00	$              17,755	170	$              67.00	$       11,390.00
13-Mar	235.00	$                  52	$    12,220.00	235	$       52.00	$              12,220	0	$              52.00	$                      -
21-Aug	170.00	$                  75	$     12,750.00	85	$       75.00	$                6,375	85	$              75.00	$         6,375.00
05-Sep	570.00	$                  71	$     40,470.00	320	$       71.00	$              22,720	250	$              71.00	$       17,750.00
Total	2080	$                   -	$ 1,41,485.00	1575		$          1,05,970	505		$       35,515.00

4:

	Average cost	FIFO	LIFO	Specific Identifications
Gross Profit	$         50,365.93	$                   51,870.00	$            51,365.00	$         51,530.00

Working:

	Average cost	FIFO	LIFO	Specific Identifications
Sales Revenue ( 1570 units * $ 100)	$     1,57,500.00	$               1,57,500.00	$        1,57,500.00	$     1,57,500.00
Less: cost pf goods sold	$     1,07,134.07	$               1,05,630.00	$        1,06,135.00	$     1,05,970.00
Gross Profit	$         50,365.93	$                   51,870.00	$            51,365.00	$         51,530.00

5: FIFO.

End of Answer.

Thanks