Question

Shown below is the activity for one of the products of Marathon Creations:

January 1 balance, 80 units @ $50

Purchases:

            January 18: 40 units @ $51

            January 21: 30 units @ $52

            January 28: 40 units @ $54

Sales:

            January 12: 30 units @ $80

            January 22: 50 units @ $80

            January 31: 45 units @ $82

Required:

Marathon Creations uses a Period Inventory System. Compute ending inventory as of January 31 and sales, cost of goods sold and gross profit for the month of January for each of the following inventory cost flow assumptions:

1. FIFO
2. Weighted Average
3. LIFO

Answer 1

Formulas and general workings

Gross profit = sales -cost of goods sold

Number of unit in closing inventory = opening inventorty units+purchases- sales

Opening inventory in units =80 units

Purchases in units =40+30+40 = 110 units

Sales in units = 30+50+45 = 125 units

Ending inventory in units =80+110-125 =65 units

a. FIFO Method
Ending inventory = 40*54+25*52	$3,460.00
Sales =30*80+50*80+45*82	$10,090.00
Cost of goods sold = 30*50+50*50+40*51+5*52	$6,300.00
Gross profit = sales -cost of goods sold	$3,790.00
Note : Under those purchased first sold first

b.Weighted average

Ending Inventory	$3,378.70
Sales =30*80+50*80+45*82	$10,090.00
cost of goods sold =30*50+50*5.83+45*51.98	$6,380.60
Gross profit	$3,709.40

Workings

Date	Particulars	Units	Rate	Amount
Jan-01	Opening inventory	80	$50.00	$4,000.00
Jan-12	Cost of goods sold	30	$50.00	$1,500.00
Jan-12	Balance inventory	50	$50.00	$2,500.00
Jan-18	Purchase	40	$51.00	$2,040.00
Jan-21	Purchase	30	$52.00	$1,560.00
Jan-21	Weight average cost = Total Cost/total available units	120.00	$50.83	$6,100.00
Jan-22	Cost of goods sold	50	$50.83	$2,541.50
Jan-22	Balance inventory	70	$50.83	$3,558.10
Jan-28	Purchase	40	$54.00	$2,160.00
Jan-28	Weight cost	110	$51.98	$5,718.10
Jan-31	Cost of goods sold	45	$51.98	$2,339.10
Jan-31	Ending inventory	65	$51.98	$3,378.70

c.LIFO

Note : Last purchases should sell first  

Closing inventory	$3,265.00
Sales =30*80+50*80+45*82	$10,090.00
Cost of goods sold(1500+2580+2415)	$6,495.00
Gross profit	$3,595.00

Working

Date	Particulars	Units	Rate	Amount
Jan-01	Opening inventory	80	$50.00	$4,000.00
Jan-12	Cost of goods sold	30	$50.00	$1,500.00
Jan-12	Balance inventory	50	$50.00	$2,500.00
Jan-18	Purchase	40	$51.00	$2,040.00
Jan-21	Purchase	30	$52.00	$1,560.00
Jan-22	Cost of goods sold(50 units)	30	$52.00	$1,560.00
	20	$51.00	$1,020.00
	Sub Total			$2,580.00
	Balance inventory	50	$50.00	$2,500.00
	20	$51.00	$1,020.00
Jan-28	Purchase	40	$54.00	$2,160.00
Jan-31	Cost of goods sold(45 units)	40	$54.00	$2,160.00
	5	$51.00	$255.00
	Sub Total			$2,415.00
Jan-31	Balance inventory	50	$50.00	$2,500.00
	15	$51.00	$765.00
	Closing inventory			$3,265.00