Question

Bell are now in the month of July and make purchases and few sales. Calculate the Gross profit and Cost of Good Sold for Bell. Co by using perpetual inventory system

a. FIFO

b. Moving Weighted Average Method

Bell has following purchases and sales on the respective dates.

Date	Inventory	Units	Price $
July1	Beg. Inventory	211@	61
July 7	Purchases	100@	59
July 10	Purchases	42 @	55
July 13	Purchases	76@	75
July 17	Purchases	42 @	36
August 15	Purchases	100@	63

​​​​​​​​​​​S. P= Selling Price
​​​​​​​​​​   C.P = Cost Price

Date	Inventory	Units	Price $
July 10	Sales	111@	70
July 15	sales	61 @	75
July 29	Sales	152 @	80
August 2	Sales	60@	70
August 12	Sales	15@	65

Answer 1

We are calcuating COGS and GP only for the month of July since the question states "Bella is in the month of July" . Also sales and purchase made in the month of August is yet to complete.

Under FIFO cost flow assumPtion sales is made from beginning inventory or inventory purchased earlier whichever is old. In short oldest item will be sold first.

Under perpetual inventory system sale and purchase will be recorded on a timely basis.

COGS = Cost Of Goods Sold

GP = Gross Profit

a) COGS and GP under FIFO cost flow assumption

On july 10 sales is 111 units which is from 211 of beginning inventory at a cost of $61 each.

Balance in beginning inventory = 211 - 111 = 100

COGS = 111 61 = 6771

On july 15 sales is 61 units which is from 100 units balance in beginning inventory at a cost of $61 each.

Balance in beginning inventory = 100 - 61 = 39

COGS = 61 61 = 3721

On july 29 sales is 152 units which is from 39 units balance in beginning inventory at a cost of $61 each and from 100 units purchased on July 7 at a cost of $59 each. Balance 13 units is from 42 units purchased on july10 at a cost of $55 each

COGS = 39 61 = 2379

COGS = 100 59 = 5900

COGS = 13 55 = 715

Total COGS = 6771 + 3721 + 2379 + 5900 + 715 = 19486

GP = Sales - COGS

Sales = (111 70) + (61 75) + (152 80) = 24505

COGS = 19486

GP = 24505 - 19486 = 5019

b) COGS and GP under Moving Weighted Average Method

Weighted Average cost per unit = Total purchase cost Total purchased units

= 28293 471

= 60.07 per unit

Total sales for July = 324 units

COGS = 324 60.07 = 19462.68

Sales = (111 70) + (61 75) + (152 80) = 24505

GP = Sales - COGS

GP = 24505 - 19462.68 = 5042.32