Question

Surf Deals had the following inventory (surfboards) information available for June and records their inventory using the periodic inventory method.

Date          Transaction                                            Units                      Unit Cost

June 1       Beginning inventory                                  100                             $200

June 2       Purchase                                                 100                             $220

June 5       Sale @ $350 per unit                                (75)

June 18     Purchase                                                 200                             $225

June 25     Purchase                                                 100                             $230

June 29     Sale @ $360 per unit                                (200)

                                                           

1. Assume that the company uses the FIFO inventory method. Develop an inventory worksheet.                                                                                                                                     

2. What is the total dollar value of the ending inventory on June 30 and the Cost of Goods Sold for June.                                                                                                                                             

                   Inventory:     ___________                                 Cost of Goods Sold:     ___________

3. Assume that the company uses the periodic approach and Weighted Average inventory method. What is the total dollar value of the ending inventory on June 30 and its Cost of Goods Sold for June?                                                                                                                            

          Inventory:     ___________                   Cost of Goods Sold:     ___________

          

4. Which method would cause Surf Deals to have the highest gross margin? Why?               (1 Mark)

Answer 1

Solution: A
	FIFO METHDO
			COST OF GOODS AVAILABLE FOR SALE	COST OF GOODS SOLD	ENDING INVENTORY
	Date	Particulars	No. of Units	Cost Per unit	Total	No. of Units	Cost Per unit	Cost of Goods Sold	No. of Units	Cost Per unit	Ending inventory
	June, 01	Beginning Balance	100	$           200.00	$20,000	100	$      200.00	$20,000
	June, 02	Purchases	100	$           220.00	$22,000	100	$      220.00	$22,000
	June, 08	Purchases	200	$           225.00	$45,000	75	$      225.00	$16,875	125	$      225.00	$28,125
	June, 25	Purchases	100	$           230.00	$23,000				100	$      230.00	$23,000
		Total Goods Available For sale	500		$1,10,000	275		$58,875	225		$51,125
	Weighted Average Cost
			COST OF GOODS AVAILABLE FOR SALE	COST OF GOODS SOLD	ENDING INVENTORY
	Date	Particulars	No. of Units	Cost Per unit	Total	No. of Units	Cost Per unit	Cost of Goods Sold	No. of Units	Cost Per unit	Ending inventory
	June, 01	Beginning Balance	100	$           200.00	$20,000
	June, 02	Purchases	100	$           220.00	$22,000
	June, 08	Purchases	200	$           225.00	$45,000
	June, 25	Purchases	100	$           230.00	$23,000
		Total Goods Available For sale	500	$220.00	$1,10,000	275	$220.00	$60,500	225	$220.00	$49,500
	Answer = A -1
			Ending Inventory	Cost of Goods Sold
		FIFO	$51,125	$58,875
	Answer = A -2
		Weighted average Cost	$49,500	$60,500
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