Question

Presented below is information related to Blowfish radios for the Blue Company for the month of July. Date Transaction Units In Unit Cost Total Units Sold Selling Price Total July 1 Balance 120 $3.80 $ 456 6 Purchase 960 3.90 3,744 7 Sale 360 $6.80 $ 2,448 10 Sale 360 7.10 2,556 12 Purchase 480 4.20 2,016 15 Sale 240 7.20 1,728 18 Purchase 360 4.30 1,548 22 Sale 480 7.20 3,456 25 Purchase 600 4.28 2,568 30 Sale 240 7.30 1,752 Totals 2,520 $10,332 1,680 $11,940

1.) Calculate average cost per unit. (Round answer to 2 decimal places, e.g. 2.76.) Weighted-average cost $

2.) Assuming that the periodic inventory method is used, compute the inventory cost at July 31 under each of the following cost flow assumptions. (Round answers to 0 decimal places, e.g. 6,578.) (1) FIFO. (2) LIFO. (3) Weighted-average. (1) FIFO (2) LIFO (3) Weighted-Average Ending Inventory at July 31 $ $ $

4.) Which of the methods used above will yield the lowest figure for gross profit for the income statement? method will yield the lowest gross profit.

5.) Which of the methods used above will yield the lowest figure for ending inventory for the balance sheet? method will yield the lowest ending inventory.

Answer 1

As per the question

July 1 Balance 120 units @ cost per unit of $3.80 = $ 456

july 6 Purchase 960 units @ cost per unit of $3.90 =$3,744

july 7 Sale 360 units @ selling price $6.80 = $2,448

  july 10 Sale 360 units @ selling price $7.10 =$2,556

july 12 Purchase 480units @ cost per unit of $4.20 = $2,016

july 15 Sale 240units 7.20 = $1,728

july 18 Purchase 360units @ cost per unit of $4.30 = $1,548

july 22 Sale 480 units @ selling price $7.20 = $3,456

july 25 Purchase 600units @ cost per unit of $4.28= $2,568

july 30 Sale of 240 units @ selling price $7.30= $1,752

Total units purchased+begining inventory units= 2520 units

Total cost of purchases+total cost of begining inventory = $10332

Total sales in units = 1680 units

Total sales revenue = $11940

ANSWERS:

1.) Average cost per unit

Average cost per unit is found by dividing The total cost of purchases and begining inventory by the total number of units purchased and begining inventory units

So,

• Average cost per unit= Total cost of purchases and begining inventory/Total begining inventory and purchased units = $10332/2520 units= $4.10 (rounded to 2 decimal places)

2.)  periodic inventory method inventory cost at July 31 or ending inventory

(1) Under FIFO

Under FIFO periodic method the inventory purchased first will be sold first. under periodic system the inventory is updated at the end of the period rather than after each sale or purchase

So as the sales units made in the month = 1680 units

And total units in inventory = 2520 units

The ending inventory in units = total units in inventory-sales units made in the month = 2520 units-1680 units = 840 units

So as under FIFO the units purchased first will be sold first The ending inventory balances includes units purchased last

So the 840 units consist of:

july 25 Purchase 600units @ cost per unit of $4.28= $2,568

july 18 Purchase 240units(850 units-600 units) @ cost per unit of $4.30 = $1032

So,

UNDER FIFO METHOD

• THE COST OF ENDING INVENTORY= (july 25 Purchase 600units*$4.28)+(july 18 Purchase 240units*$4.30)= $3600

(2) Under LIFO

Under LIFO periodic method the inventory purchased last will be sold first. under periodic system the inventory is updated at the end of the period rather than after each sale or purchase

So as the sales units made in the month = 1680 units

And total units in inventory = 2520 units

The ending inventory in units = total units in inventory-sales units made in the month = 2520 units-1680 units = 840 units

So as under LIFO the units purchased Last will be sold first The ending inventory balances includes units purchased first

So the 840 units consist of:

july 1 balance of 120 units @ cost per unit of $3.80= $456

july 6 Purchase 720 units(840 units-120 units) @ cost per unit of $3.90 = $2808

So,

UNDER LIFO METHOD

• THE COST OF ENDING INVENTORY= (july 1 balance of 120 units*$3.80)+(july 6 Purchase 720 units*$3.90)= $3264

(3) Weighted average method

Under Weighted average method the ending inventory is found by multiplying the Weighted average cost per unit with Units in ending inventory .under periodic system the inventory is updated at the end of the period rather than after each sale or purchase

So as the sales units made in the month = 1680 units

And total units in inventory = 2520 units

The ending inventory in units = total units in inventory-sales units made in the month = 2520 units-1680 units = 840 units

Average cost per unit= Total cost of purchases and begining inventory/Total begining inventory and purchased units = $10332/2520 units= $4.10 (rounded to 2 decimal places)

So,

UNDER Weighted average method THE COST OF ENDING INVENTORY=The ending inventory in units*Average cost per unit = 840 units*$4.10= $3444

4) Method which yield the lowest figure for gross profit for the income

Total sales revenue is same for the 3 method = $11940

Gross profit= Total sales revenue- cost of goods sold

As Under the LIFO method the units sold are from the last purchases the cost of goods sold Figure under LIFO will be higher than the other two methods

The reason for a high figure of cost of goods sold under LIFO is becuase The cost of goods sold includes the Cost per unit of Latest purchases. As the cost per unit of latest purchases are always more the the cost per unit purchased earlier or in the begining month and average cost per unit , this results in higher Cost of goods sold Under LIFO Method

So, as the Cost of goods sold is higher under the LIFO method than FIFO and average cost method

The lowest figure for gross profit for the income statement will be yielded by the LIFO method

5.) method which will yield the lowest figure for ending inventory for the balance sheet

LIFO method yields the lowest figure for ending inventory for the balance sheet

As under the LIFO methods units purchased last will be sold first The ending inventory units under LIFO method usually consist of Units in the begining inventory or earlier purchases.

The cost per unit of earlier purchases are lower than the Cost per unit of latest purchases since these are not updated with time

So as the cost per unit is lower The Ending inventory balance will be lower under LIFO than Ending inventory balance under FIFO and AVCO

Also we can see from our answer that the lowest figure for ending inventory for the balance sheet is yielded by LIFO with Cost of ending inventory of $3264 which is lower than the Ending inventory balances of FIFO and AVCO