Question

Natalie 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.

(a) Determine the cost of goods available for sale. Cost of goods available for sale $

Answer 1

Her business is a trading business, which use to purchase goods and sell those goods. She doesn't manufacture any goods. For trading business following are the formulas

1)Cost of goods sold = opening sellable inventory + Purchase of finished goods - closing sellable inventory

Sellable inventory means stock of finished product

2) Cost of goods available for sale = opening sellable inventory + purchase of finished goods

Note: Here, cost price is increasing so, to get tax benefits, she should use periodic LIFO methods.Because it increases cost of goods sold and it reduces gross profit.

Calculation for total purchase of finished goods during February to May :

Date	Units purchased	Cost per unit	Total cost of purchase
February 2, 2020	2	$ 600	$ 1,200
March 2, 2020	1	$ 618	$ 618
April 1, 2020	2	$ 612	$ 1,224
May 4, 2020	3	$ 625	$ 1,875

Calculation for Total cost of goods available for sale and cost of goods sold:

Months	Opening inventory	+	Purchase	=	Cost of goods available for sale	-	Closing inventory	Cost of goods sold
February	$ 1,785		$ 1,200		$ 2,985		$ 2,385	$ 600
March	$ 2,385		$ 618		$ 3,003		$ 1,785	$ 1,218
April	$ 1,785		$ 1,224		$ 3,009		$1,190	$ 1,819
May	$ 1,190		$ 1,875		$ 3,065		$ 2,440	$ 625
				Total cost of goods available for sale	$ 12,062		Total cost of goods sold	$ 4,262

Note: Calculation for Closing inventory (as per LIFO) = Cost of goods available for sale  - COGS

February = $ 2,985 - ( $ 600 X1) = $ 2,385

March = $ 3,003 - ( $ 618 X 1) + ( $ 600 X1)] = $ 1,785

April = $ 3,009 - [ ( $ 612 X 2) + ( $ 595 X 1) ] = $ 1,190

May = $ 3,065 - ( $ 625 X 1) = $ 2,440