Question

Warnerwoods Company uses a periodic inventory system. It entered into the following purchases and sales transactions for March.

Date

Activities

Units Acquired at Cost

Units Sold at Retail

Mar.

1

Beginning inventory

130

units

@ $65 per unit

Mar.

5

Purchase

430

units

@ $70 per unit

Mar.

9

Sales

450

units

@ $100 per unit

Mar.

18

Purchase

180

units

@ $75 per unit

Mar.

25

Purchase

260

units

@ $77 per unit

Mar.

29

Sales

220

units

@ $110 per unit

Totals

1,000

units

670

units

For specific identification, the March 9 sale consisted of 70 units from beginning inventory and 380 units from the March 5 purchase; the March 29 sale consisted of 70 units from the March 18 purchase and 150 units from the March 25 purchase.

4. Compute gross profit earned by the company for each of the four costing methods. (Round your average cost per unit to 2 decimal places and final answers to nearest whole dollar.)

Answer 1

		FIRST IN FIRST OUT METHOD(FIFO)
		Ending Inventory =1000-670	330	units
		Most recent purchases at the end of the month will be in the ending inventory as per this method
		Ending Inventory will consist of:
		260 units @ $77 per unit(March25 Purchase)	$20,020	(260*77)
		(330-260)=70 units @$75 per unit(March18 Purchase)	$5,250	(70*75)
	A	Total Ending Inventory	$25,270
	B	Beginning Inventory=130*$65=	$8,450
		Purchases:
		March 5 , 430*$70=	$30,100
		March18, 180*$75=	$13,500
		March25, 260*$77=	$20,020
	C	Total Purchases during the month	$63,620
	D=B+C-A	Cost of goods sold	$46,800
		SALES:
		March9, 450 *$100=	$45,000
		March29, 220*$110=	$24,200
	E	Total Sales Revenue	$69,200
	P=E-D	Gross Profit	$22,400
		LAST IN FIRST OUT METHOD(LIFO)
		Ending Inventory =1000-670	330	units
		Oldest purchases at the end of the month will be in the ending inventory as per this method
		Ending Inventory will consist of:
		130 units @ $65per unit(Beginning Inventory)	$8,450	(130*65)
		(330-130)=200 units @$70per unit(March5 Purchase)	$14,000	(200*70)
	A	Total Ending Inventory	$22,450
	B	Beginning Inventory=130*$65=	$8,450
		Purchases:
	C	Total Purchases during the month	$63,620
	D=B+C-A	Cost of goods sold	$49,620
		SALES:
	E	Total Sales Revenue	$69,200
	P=E-D	Gross Profit	$19,580
		WEIGHTED AVERAGE COST METHOD
		Ending Inventory =1000-670	330	units
		Weighted average cost is considered for both ending inventory and cost of goods sold under this method
	A	Beginning Inventory=130*$65=	$8,450
	B	Total Purchases during the month=	$63,620
	C=A+B	Total goods available	$72,070
	D	Number of units available	1,000
	E=C/D	Weighted average cost per unit =30900/1000=	$72.07
	F	Units Sold =1000-330	670
	G=E*F	Cost of goods sold	$48,287
		SALES:
	H	Total Sales Revenue	$69,200
	P=H-G	Gross Profit	$20,913
		SPECIFIC IDENTIFICATION METHOD
		COST OF GOODS SOLD:
		March 9 Sales:
		70*$65	$4,550
		380*$70	$26,600
		March 29 Sales:
		70*$75	$5,250
		150*$77	$11,550
	A	Total Cost of goods sold	$47,950
	B	Total Sales Revenue	$69,200
	P=B-A	Gross Profit	$21,250