Question

Problem 6-2AA Periodic: Alternative cost flows LO P3

[The following information applies to the questions displayed below.]

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

200

units

@ $90 per unit

Mar.

5

Purchase

500

units

@ $95 per unit

Mar.

9

Sales

520

units

@ $125 per unit

Mar.

18

Purchase

320

units

@ $100 per unit

Mar.

25

Purchase

400

units

@ $102 per unit

Mar.

29

Sales

360

units

@ $135 per unit

Totals

1,420

units

880

units

For specific identification, the March 9 sale consisted of 70 units from beginning inventory and 450 units from the March 5 purchase; the March 29 sale consisted of 140 units from the March 18 purchase and 220 units from the March 25 purchase.

Required.
Part one. Compute cost of goods available for sale and the number of units available for sale.

Part two. Compute the number of units in ending inventory.

Part three. Compute the cost assigned to ending inventory using (a) FIFO, (b) LIFO, (c) weighted average, and (d) specific identification. (Round your average cost per unit to 2 decimal places.)

Part four. 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

Solution:

Periodic Inventory system is a system of inventory in which inventories are updated on a periodic basis. Periodic basis may be monthly, quarterly, weekly, half yearly or yearly. In this system, inventories are not kept up to date.

Part 1 --- cost of goods available for sale and the number of units available for sale

	Units	$/Unit	$$
Beginning Inventory March 1	200	$90	$18,000
Purchases March 5	500	$95	$47,500
Purchases March 18	320	$100	$32,000
Purchases March 25	400	$105	$42,000
Goods Available for Sale	1420		$139,500

Cost of Goods Available for Sale = $139,500

Number of Units available for sale = 1,420 Units

Part 2 --- Ending Inventory Units

Number of Units available for sale = 1,420 Units

Total Units Sold = 520 + 360 = 880 Units

Number of Units in Ending Inventory = Number of Units available for sale 1,420 Units – Units Sold 880 Units

= 540 Units

Part 3(a) --- Cost assigned to ending inventory using FIFO Periodic Method

FIFO method says the oldest units in stock are issued or sold first.

FIFO (Periodic)	Units	$/Unit	$$
Beginning Inventory March 1	200	$90	$18,000
Purchases March 5	500	$95	$47,500
Purchases March 18	320	$100	$32,000
Purchases March 25	400	$105	$42,000
Goods Available for Sale	1420		$139,500
Cost of Goods Sold	Units	$/Unit	$$
Sale from Beginning Inventory	200	$90	$18,000
Sale from Purchases March 5	500	$95	$47,500
Sale from Purchases March 18	180	$100	$18,000
Sale from Purchases March 25	0		$0
Total Cost of Goods Sold (B)	880		$83,500
Ending Inventory (A - B)	540		$56,000

Cost assigned to Ending Inventory using FIFO = $56,000

3(b) --- Cost assigned to ending inventory using LIFO Periodic Method

LIFO method says the newest units in stock are issued or sold first.

LIFO (Periodic)	Units	$/Unit	$$
Beginning Inventory March 1	200	$90	$18,000
Purchases March 5	500	$95	$47,500
Purchases March 18	320	$100	$32,000
Purchases March 25	400	$105	$42,000
Goods Available for Sale	1420		$139,500
Cost of Goods Sold	Units	$/Unit	$$
Sale from Beginning Inventory	0	$90	$0
Sale from Purchases March 5	160	$95	$15,200
Sale from Purchases March 18	320	$100	$32,000
Sale from Purchases March 25	400	$105	$42,000
Total Cost of Goods Sold (B)	880		$89,200
Ending Inventory (A - B)	540		$50,300

Cost assigned to Ending Inventory using LIFO = $50,300

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

Pls ask separate question for remaining parts