Question

Morse Inc. is a retail company that uses the perpetual inventory method. Assume that there are no credit transactions; all amounts are settled in cash. You have the following information for Morse Inc. for the month of January 2014.

Date Dec. 31 Jan. 2 Jan. 6 Jan. 9 Jan. 10 Jan. 23 Jan. 30

Description Ending inventory Purchase
Sale
Purchase
Sale
Purchase
Sale

Unit Cost or Quantity Selling Price

140 $14 120 15 150 30

85 17

70 35 100 20 110 42

Instructions (a) For each of the following cost flow assumptions (1) LIFO. (2) FIFO. (3) Moving-average. (Round cost per unit to three decimal places.) calculate (i) cost of goods sold, (ii) ending inventory, and (iii) gross profit.

Answer 1

Ans.	Ending inventory for previous year (Dec. 31) is the beginning for current year.
	Perpetual FIFO:
	Purchase				Cost of goods sold			Balance
	Date	Quantity	Rate	Total cost	Quantity	Rate	Total cost	Quantity	Rate	Total cost
	31-Dec	140	$14.00	$1,960				140	$14.00	$1,960
	2-Jan	120	$15.00	$1,800				140	$14.00	$1,960
								120	$15.00	$1,800
	6-Jan				120	$15.00	$1,800
					30	$14.00	$420	110	$14.00	$1,540
	9-Jan	85	$17.00	$1,445				110	$14.00	$1,540
								85	$17.00	$1,445
	10-Jan				70	$17.00	$1,190	110	$14.00	$1,540
								15	$17.00	$255
	23-Jan	100	$20.00	$2,000				110	$14.00	$1,540
								15	$17.00	$255
								100	$20.00	$2,000
	30-Jan				100	$20.00	$2,000
					10	$17.00	$170	110	$14.00	$1,540
								5	$17.00	$85
	Total				Cost of goods sold		$5,580	Ending inventory		$1,625
	*In LIFO method the units that have purchased last, are released the first one and the ending inventory
	units remain from the first purchases.
Ans.	Perpetual FIFO:
	Purchase				Cost of goods sold			Balance
	Date	Quantity	Rate	Total cost	Quantity	Rate	Total cost	Quantity	Rate	Total cost
	31-Dec	140	$14.00	$1,960				140	$14.00	$1,960
	2-Jan	120	$15.00	$1,800				140	$14.00	$1,960
								120	$15.00	$1,800
	6-Jan				140	$14.00	$1,960
					10	$15.00	$150	110	$15.00	$1,650
	9-Jan	85	$17.00	$1,445				110	$15.00	$1,650
								85	$17.00	$1,445
	10-Jan				70	$15.00	$1,050	40	$15.00	$600
								85	$17.00	$1,445
	23-Jan	100	$20.00	$2,000				40	$15.00	$600
								85	$17.00	$1,445
								100	$20.00	$2,000
	30-Jan				40	$15.00	$600
					70	$17.00	$1,190	15	$17.00	$255
								100	$20.00	$2,000
	Total				Cost of goods sold		$4,950	Ending inventory		$2,255
	*In FIFO method the units that have purchased first, are released the first one and the ending inventory
	units remain from the last purchases.
Ans.	Weighted Average
	Purchase				Cost of goods sold			Balance
	Date	Quantity	Rate	Total cost	Quantity	Rate	Total cost	Quantity	Rate	Total cost
	31-Dec	140	$14.00	$1,960				140	$14.00	$1,960
	2-Jan	120	$15.00	$1,800				260	$14.462	$3,760
	6-Jan				150	$14.462	$2,169	110	$14.462	$1,591
	9-Jan	85	$17.00	$1,445				195	$15.568	$3,036
	10-Jan				70	$15.57	$1,090	125	$15.568	$1,946
	23-Jan	100	$20.00	$2,000				225	$17.538	$3,946
	30-Jan				110	$17.538	$1,929	115	$17.538	$2,017
	Total				Cost of goods sold		$5,188	Ending inventory		$2,017
	*Weighted average rate is calculated by using the formula of (Total available balance / Total units available).
Ans.			LIFO	FIFO	Weighted avgerage
	Sales		$11,570	$11,570	$11,570
	(-) Cost of goods sold		-$5,580	-$4,950	-$5,188
	Gross margin		$5,990	$6,620	$6,382
	*Calculation of sales:
	Date	Units	Rate	Cost
	6-Jan	150	$30.00	$4,500
	10-Jan	70	$35.00	$2,450
	30-Jan	110	$42.00	$4,620
	Total sales			$11,570