Question

In: Accounting

Arizona Inc. uses the perpetual inventory system, and recorded the following data pertaining to raw material...

Arizona Inc. uses the perpetual inventory system, and recorded the following data pertaining to raw material X during January 2018:

                                                                                      Units                                 

       Date                                Received           Cost              Issued           On Hand

       Jan   1      Inventory                                $4.50                                        3,200

       Jan 11      Sale ($18)                                                      1,600                1,600

       Jan 15      Purchase           1,000            $4.70                                        2,600

       Jan 17      Sale ($18)                                                       1,100               1,500

       Jan 25      Purchase           1,500            $4.90                                       3,000         

       Round your answer to two decimals.

      

       Instructions:

  1. Determine the cost of sales, gross profit and inventory value of raw material X inventory at January 31, 2018 using the moving-weighted average method.
  1. Determine the cost of sales, gross profit and inventory value of raw material X inventory at January 31, 2018 using the average cost method.

Solutions

Expert Solution

a)Under moving average method ,average cost per unit is calculated at the time of every purchase .

Formula :Average cost per unit =Cost of inventory available for sale/Units available for sale

MOVING WEIGHTED AVERAGE METHOD
DATE PURCHASE COST OF SALES INVENTORY AT END
Quantity Unit cost Total Quantity Unit cost Total Quantity Unit cost Total
Jan 1 3200 4.50 14400
Jan 11 1600 4.50 7200 3200-1600=1600 4.50 7200
Jan 15 1000 4.70 4700 1600+1000=2600

[7200+4700]/2600

11900/2600

4.58

11900
Jan 17 1100 4.58 5038 2600-1100=1500 4.58 6862
Jan 25 1500 4.9 7350 1500+1500=3000

[6862+7350]/3000

4.74

14212
Total 12238

Sales revenue

Units sales 1600+1100=2700
unit selling price 18
Total sales revenue 48600
Cost of goods sold 12238
Gross profit   (sales -cost of sales )) 48600-12238 = 36362
Inventory as on Jan 31 14212

2)

Quantity * Unit cost = total
Beginning 3200 4.5 14400
Jan 15 1000 4.7 4700
Jan 25 1500 4.9 7350
Total 5700 26450

Average cost per unit = 26450 /5700

             = $ 4.64

Cost of goods sold (unit sold *average cost per unit) 2700*4.64=12528
Gross profit   (sales -cost of sales )) 48600-12528= 36072
Inventory as on Jan 31 (cost of goods available for sale -cost of sales) 26450-12528 = 13922

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