In: Accounting
In October 2017, Nicole of Nicole’s Getaway Spa (NGS) eliminated
all existing inventory of cosmetic items. The trouble of ordering
and tracking each product line had exceeded the profits earned. In
December, a supplier asked her to sell a prepackaged spa kit.
Feeling she could manage a single product line, Nicole agreed. NGS
would make monthly purchases from the supplier at a cost that
included production costs and a transportation charge. The spa
would use a perpetual inventory system to keep track of its new
inventory.
On December 30, 2017, NGS purchased ten units at
a total cost of $7.00 per unit. NGS purchased thirty more units at
$9.00 in February 2018, but returned five defective units to the
supplier. In March, NGS purchased fifteen units at $11.00 per unit.
In May, fifty units were purchased at $11.00 per unit; however, NGS
took advantage of a 2.00/10, n/30 discount from the supplier. In
June, NGS sold fifty units at a selling price of $12.90 per unit
and thirty-five units at $10.90 per unit.
Required:
1. State whether the transportation cost included in each
purchase should be recorded as a cost of the inventory or
immediately expensed.
Immediately expensed
Inventory cost
2. Compute the Cost of Goods Available for Sale,
Cost of Goods Sold, and Cost of Ending Inventory using the
first-in, first-out (FIFO) method. (Do not round
intermediate calculations. Round final answers to the nearest
dollar amount.)
3-a. Calculate the inventory turnover ratio, using
the inventory on hand at December 31, 2017, as the beginning
inventory. (Round your answer to 1 decimal
place.)