Question

Hefty Company wants to know the effect of different inventory methods on financial statements. Given below is information about beginning inventory and purchases for the current year. (Please Explain how to do this method)

January 2 Beginning Inventory 500 units at $3.00

April 7 Purchased 1,100 units at $3.20

June 30 Purchased 400 units at $4.00

December 7 Purchased 1,600 units at $4.40

Sales during the year were 2,700 units at $5.00. If Hefty used the weighted-average method, gross profit would be:

• $3,255
• $3,415
• $10,245
• $13,500

Answer 1

Correct Answer:

Option A :

Gross Profit

$        3,255

Working:

Cost of Goods Available for sale
	Units	Cost per unit	value
Beginning Inventory	500	$           3.00	$           1,500
Purchases	1100	$           3.20	$           3,520
Purchases	400	$           4.00	$           1,600
Purchases	1600	$           4.40	$           7,040
Total	3600		$         13,660

Weighted Average Cost Per unit
Units		(A)	3600
Total Cost		(B)	$      13,660
Average Cost		(C=B/A)	$        3.794

Weighted Average
A	Total Units Available for sale			3600			$              13,660
	Units Sold			2700
	Ending Inventory Units			900
	Valuation
	Cost of Goods Sold		2700		$         3.7944		$              10,245
B	Total Cost of Goods Sold		2700	units			$              10,245
A-B	Ending Inventory		900	units			$                3,415

		Weighted Average
A	Sales Revenue	$     13,500
B	Cost of goods sold	$     10,245
C =A-B	Gross Margin	$        3,255

Sales Revenue
units sold	Selling price per unit	Total amount
2700	$                   5	$            13,500

End of Answer.

Thanks