Question

Mojo Industries tracks the number of units purchased and sold throughout each accounting period but applies its inventory costing method at the end of each period, as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the accounting period, January 31. The inventory’s selling price is $14 per unit. Transactions Unit Cost Units Total Cost Inventory, January 1 $ 5.00 310 $ 1,550 Sale, January 10 (200 ) Purchase, January 12 5.50 360 1,980 Sale, January 17 (150 ) Purchase, January 26 6.50 80 520 Assuming that for Specific identification method (item 1d) the January 10 sale was from the beginning inventory and the January 17 sale was from the January 12 purchase. Required: 1. Compute the amount of goods available for sale, ending inventory, and cost of goods sold at January 31 under each of the following inventory costing methods: (Round your intermediate calculations to 2 decimal places and final answers to the nearest dollar amount.) 2-a. Of the four methods, which will result in the highest gross profit? 2-b. Of the four methods, which will result in the lowest income taxes?

Answer 1

	Units	Unit cost	Total
January 1	310	5	1550
January 12	360	5.5	1980
January 26	80	6.5	520
Total	750		4050
Ending inventory units = 750-200-150= 400
Average cost = 4050/750 = $5.40
1
Weighted average cost:
Amount of goods available for sale	4050
Ending inventory	2160	=400*5.4
Cost of goods sold	1890	=4050-2160
First in first out:
Amount of goods available for sale	4050
Ending inventory	2280	=(80*6.5)+(320*5.5)
Cost of goods sold	1770	=4050-2280
Last in first out:
Amount of goods available for sale	4050
Ending inventory	2045	=(310*5)+(90*5.5)
Cost of goods sold	2005	=4050-2045
Specific identification:
Amount of goods available for sale	4050
Ending inventory	2225	=(310-200)*5+(360-150)*5.5+(80*6.5)
Cost of goods sold	1825	=4050-2225
2a
First in first out, will result in the highest gross profit
2b
Last in first out, will result in the lowest income taxes