In: Accounting
Bendigo Pottery Ltd is a wholesale distributor of hand-made glazed garden pots to retail stores. All garden pots are identical. Details for January 2020 are shown below.
January |
1 |
Opening inventory |
2,000 pots – cost $39 each |
8 |
Sales |
1,200 pots – selling price $80 each |
|
9 |
Purchases |
1,600 pots – purchase price $44 each |
|
28 |
Sales |
1,800 pots – selling price $84 each |
|
31 |
Closing inventory |
600 pots from the stock stake |
Additional information:
Required:
a.) | Weighted average cost is caclculated by dividing the cost of goods available for sale by the number of units available for sale.Weighted average Cost method is reasonable to use when the goods are homogeneous, or when it is difficult to make a cost flow assumption.The ending inventory reported under the method is influenced by all the purchase prices paid during the year, and thus evens out the effect of price increases or decreases on ending inventory value. Bendigo Pottery Ltd. has opening inventory of 2,000 units was priced at $ 39 per unit, while subsequent purchases of 1,600 units are priced at $ 44 per unit. While sales have occurred from both lots, therefore the company has found weighted average cost method to be more appropriate. | ||||
b.) | Units | Cost per Unit | Amount $ | ||
Opening inventory | 2,000 | 39 | 78,000 | ||
Purchases | 1,600 | 48 ( 44 + 4 ) | 76,800 | ||
Goods available for Sale | 3,600 | 43 (154,800 / 3,600) | 1,54,800 | ||
Cost of Sales | 3,000 | 43 | 1,29,000 | ||
Closing inventory | 600 | 43 | 25,800 | ||
Inventory is to be valued at the lower of cost or net realizable value. | |||||
Value of ending inventory | $ 23,460 | ( ( 600 - 180) x 43 )+ (180 x 30 ) | |||
c.) | Date | Account Titles | Debit $ | Credit $ | |
Jan 31, 2020 | Inventory Write Down Loss | 2,340 | |||
Inventory | 2,340 | ||||
( 25,800 - 23,460 ) | |||||