Question

atalie is busy establishing both divisions of her business (cookie classes and mixer sales) and completing her business degree. Her goals for the next 11 months are to sell one mixer per month and to give two to three classes per week.

The cost of the fine European mixers is expected to increase. Natalie has just negotiated new terms with Kzinski that include shipping costs in the negotiated purchase price (mixers will be shipped FOB destination). Assume that Natalie has decided to use a periodic inventory system and now must choose a cost flow assumption for her mixer inventory.

Inventory as on January 31, 2020 represents three deluxe mixer purchased at a unit cost of $595.

The following transactions occur in February to May 2020.

Feb. 2		Natalie buys two deluxe mixers on account from Kzinski Supply Co. for $1,200 ($600 each), FOB destination, terms n/30.
16		She sells one deluxe mixer for $1,150 cash.
25		She pays the amount owed to Kzinski.
Mar. 2		She buys one deluxe mixer on account from Kzinski Supply Co. for $618, FOB destination, terms n/30.
30		Natalie sells two deluxe mixers for a total of $2,300 cash.
31		She pays the amount owed to Kzinski.
Apr. 1		She buys two deluxe mixers on account from Kzinski Supply Co. for $1,224 ($612 each), FOB destination, terms n/30.
13		She sells three deluxe mixers for a total of $3,450 cash.
30		Natalie pays the amounts owed to Kzinski.
May 4		She buys three deluxe mixers on account from Kzinski Supply Co. for $1,875 ($625 each), FOB destination, terms n/30.
27		She sells one deluxe mixer for $1,150 cash. LIFOFIFOAverage CostEnding inventory$ $ $ Cost of goods sold$ $ $ Gross profit$ $ $ Gross profit rate % % %

Answer 1

Computation of Cost of good sold and Ending inventory under FIFO Method

		Purchases			Cost of good sold			Inventory balance
Date	Particular	qty	Rate	Amount	qty	Rate	Amount	qty	Rate	Amount
31.1.2020	Purchase	3	595	1785				3	595	1785
2.2.2020	Purchase	2	600	1200				3 2	595 600	1785 1200
16.2.2020	Sales				1	595	595	2 2	595 600	1190 1200
2.3.2020	Purchase	1	618	618				2 2 1	595 600 618	1190 1200 618
30.3.2020	Sales				2	595	1190	2 1	600 618	1200 618
1.4.2020	Purchase	2	612	1224				2 1 2	600 618 612	1200 618 1224
13.4.2020	Sales				2 1	600 618	1200 618	2	612	1224
4.5.2020	Purchase	3	625	1875				2 3	612 625	1224 1875
27.5.2020	Sales				1	612	612	1 3	612 625	612 1875
31.5.2020		Purchases		6702	Cost of good sold		4215	Closing sto k		2487

Total Sales during the period =1150+ 2300+3450+1150 =8050

Cost of good sold UNDER FIFO method=4215

Ending inventory under FIFO method=2487

Gross Profit under FIFO method = Total sales - Cost of good sold

= 8050 - 4215 =3835

Gross profit ratio =3835/8050 =47.64%

Computation of cost of good sold and ending inventory under LIFO method

		Purchases			Cost of good sold			Inventory balance
Date	particular	Qty	Rate	Amount	Qty	Rate	Amount	Qty	Rate	Amount
31.1.2020	Purchase	3	595	1785				3	595	1785
2.2.2020	Purchase	2	600	1200				3 2	595 600	1785 1200
16.2.2020	Sales				1	600	600	3 1	595 600	1785 600
2.3.2020	Purchase	1	618	618				3 1 1	595 600 618	1785 600 618
30.3.2020	sale				1 1	618 600	618 600	3	595	1785
1.4.2020	Purchase	2	612	1224				3 2	595 612	1785 1224
13.4.2020	Sales				2 1	612 595	1224 595	2	595	1190
4.5.2020	Purchase	3	625	1875				2 3	595 625	1190 1875
27.5.2020	Sales				1	625	625	2 2	595 625	1190 1250
31.5.2020		Purchase		6702	Cost of good sold		4262	Closing stock		2440

Cost of good sold under LIFO method = 4262

Ending inventory under LIFO Method =2440

Gross profit = Total sales - Cost of good sold

=8050 -4262 = 3788

Gross profit ratio = Gross profit / Sales = 3788/8050 =47.06%

Computation of cost of good sold and ending inventory under AVERAGE COST

		Purchase			Cost of good sold			Inventory balance
Date	Particular	Qty	Rate	Amount	Qty	Rate	Amount	Qty	Rate	Amount
31.1.2020	Purchase	3	595	1785				3	595	1785
2.2.2020	Purchase	2	600	1200				5	597	2985
16.2.2020	Sale				1	597	597	4	597	2388
2.3.2020	Purchase	1	618	618				5	601.2	3006
30.3.2020	Sales				2	601.2	1202.4	3	601.2	1803.6
1.4.2020	Purchase	2	612	1224				5	605.52	3027.6
3.4.2020	sale				3	605.52	1816.56	2	605.52	1211.04
4.5.2020	Purchase	3	625	1875				5	617.21	3086.04
27.5.2020	Sale				1	617.21	617.21	4	617.21	2468.83
31.5.2020		Total purchase		6702	Cost of good sold		4233.17	Closing stock		2468.83

Cost of good sold under AVERAGE COST method =4233.17

Gross profit = Total sales - Cost of good sold

=8050 -4233.17 =3816.83

Gross profit ratio = Gross profit /Sales

=3816/8050=47.41%