Question

In: Accounting

Warnerwoods Company uses a perpetual inventory system. It entered into the following purchases and sales transactions...

Warnerwoods Company uses a perpetual inventory system. It entered into the following purchases and sales transactions for March.

Date Activities Units Acquired at Cost Units Sold at Retail
Mar. 1 Beginning inventory 120 units @ $51.40 per unit
Mar. 5 Purchase 235 units @ $56.40 per unit
Mar. 9 Sales 280 units @ $86.40 per unit
Mar. 18 Purchase 95 units @ $61.40 per unit
Mar. 25 Purchase 170 units @ $63.40 per unit
Mar. 29 Sales 150 units @ $96.40 per unit
Totals 620 units 430 units

4. Compute gross profit earned by the company for each of the four costing methods. For specific identification, the March 9 sale consisted of 75 units from beginning inventory and 205 units from the March 5 purchase; the March 29 sale consisted of 55 units from the March 18 purchase and 95 units from the March 25 purchase. (Round weighted average cost per unit to two decimals and final answers to nearest whole dollar.)

Solutions

Expert Solution

  • All working forms part of the answer
  • Value of Cost of Goods Sold and Closing Inventories are calculated on the basis of Perpetual Method
  • Amounts are in $
  • Working for Sales

Sales

Units

Rate

Amount

Mar-09

280

86.4

24192

Mar-29

150

96.4

14460

Total

430

38652

Gross Profits = Sales – Cost of Goods Sold

  • Calculation of Cost of Goods Sold by:
  • FIFO

FIFO

Opening + Purchases

Cost of Goods Sold

Closing Inventory

Opening units

120

51.40

6168

120

51.40

6168.00

Mar 5 Purchase

235

56.40

13254

120

51.40

6168.00

235

56.40

13254.00

Mar 9 Sales

120

51.40

6168

75

56.40

4230.00

160

56.40

9024

0.00

Mar 18 Purchase

95

61.40

5833

75

56.40

4230.00

95

61.40

5833.00

Mar 25 Purchase

170

63.40

10778

75

56.40

4230.00

95

61.40

5833.00

170

63.40

10778.00

Mar 29 Sales

75

56.40

4230.00

20

61.40

1228.00

75

61.40

4605.00

170

63.40

10778.00

TOTAL

620

36033

430

24027

190

12006

Units

Value

Cost of Goods Sold

430

24027

Closing Inventory

190

12006

Gross Profit

38652 - 24027

=$14625

  • LIFO

LIFO

Opening + Purchases

Cost of Goods Sold

Closing Inventory

Opening units

120

51.40

6168

120

51.40

6168.00

Mar 5 Purchase

235

56.40

13254

120

51.40

6168.00

235

56.40

13254.00

Mar 9 Sales

235

56.40

13254

75

51.40

3855.00

45

51.40

2313

Mar 18 Purchase

95

61.40

5833

75

51.40

3855.00

95

61.40

5833.00

Mar 25 Purchase

170

63.40

10778

75

51.40

3855.00

95

61.40

5833.00

170

63.40

10778.00

Mar 29 Sales

150

63.40

9510.00

75

51.40

3855.00

95

61.40

5833.00

20

63.40

1268.00

TOTAL

620

36033.00

430

25077.00

190

10956

Units

Value

Cost of Goods Sold

430

25077

Closing Inventory

190

10956

Gross Profit

(38652 – 25077)

$13575

  • Weighted Average Method

Weighted Average cost

Opening + Purchases

Cost of Goods Sold

Closing Inventory

Opening

120

51.40

6168

120

51.40

6168.00

Mar 5 Purchase

235

56.4

13254

355

54.71

19422.00

Mar 9 Sales

280

54.71

15319.00

75

54.71

4103.00

Mar 18 Purchase

95

61.4

5833

170

58.45

9936.00

Mar 25 Purchase

170

63.40

10778

340

60.92

20715.00

Mar 29 Sales

150

60.92

9138.00

190

60.92

11576.00

TOTAL

620

36033.00

430

24457.00

190

18.15

11576

Units

Value

Cost of Goods Sold

430

24457.00

Closing Inventory

190

11576

Gross Profit

(38652 – 24457)

$14195

  • Specific Identification Method

Specific Identification

Opening + Purchases

Cost of Goods Sold

Closing Inventory

Opening units

120

51.40

6168

120

51.40

6168.00

Mar 5 Purchase

235

56.40

13254

120

51.40

6168.00

235

56.40

13254.00

Mar 9 Sales

75

51.40

3855

45

51.40

2313.00

205

56.40

11562

30

56.40

1692.00

Mar 18 Purchase

95

61.40

5833

45

51.40

2313.00

30

56.40

1692.00

95

61.40

5833.00

Mar 25 Purchase

170

63.40

10778

45

51.40

2313.00

30

56.40

1692.00

95

61.40

5833.00

170

63.40

10778.00

Mar 29 Sales

55

61.40

3377.00

45

51.40

2313.00

95

63.40

6023.00

30

56.40

1692.00

40

61.40

2456.00

75

63.40

4755.00

TOTAL

620

36033.00

430

24817.00

190

11216.00

Units

Value

Cost of Goods Sold

430

24817

Closing Inventory

190

11216

Gross Profits

(38652 – 24817)

$13835


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