Question

In: Accounting

Shown below is the activity for one of the products of Lawrence Creations: January 1 balance,...

Shown below is the activity for one of the products of Lawrence Creations:

January 1 balance, 80 units @ $50

Purchases:

January 19: 40 units @ $51

January 22: 30 units @ $52

January 29: 40 units @ $54

Sales:

January 13: 30 units @ $80

January 23: 50 units @ $80

January 31: 45 units @ $82

Required: Lawrence Creations uses a Period Inventory System. Compute ending inventory as of January 31 and sales, cost of goods sold and gross profit for the month of January for each of the following inventory cost flow assumptions:

a. FIFO b. Weighted Average c. LIFO

Solutions

Expert Solution

Lawrence Creations

Ending inventory units = opening inventory + Purchases - Sales

= 80 units + (40+30+40) units - (30+50+45) units

= 80 + 110 - 125 = 65 units

Average cost :

Date calculations $
January 1 (80 units × $ 50)/80 units $ 50
January 19 (((80-30) units × $ 50)+(40 units × $ 51))/(50+40) units $ 50.44
January 22 ((90 units × $ 50.44)+(30 units × $ 52))/(90+30) units $ 50.83
January 29 (((120-50) units × $ 50.83) + (40 units × $54))/(70+40) units $ 51.98

Sales = (30 units × $ 80)+(50 units × $ 80)+(45 units × $ 82) = $ 10,090

Sl no FIFO weighted average LIFO
A Sales $ 10,090 $ 10,090 $ 10,090
B Ending inventory

(40 units × $ 54)+(25 units × $ 52)

= $ 3,460

65 units × $ 51.98

= $ 3,379

(50 units × $ 50)+(15 units × $ 51)

= $ 3,265

C Cost of goods sold

(80 units × $ 50)+(40 units × $ 51)+(5 units × $ 52)

= $ 6,300

(30 units × $ 50)+(50 units × $ 50.83)+(45 units × $ 51.98)

= $ 6,381

(30 units × $ 50)+(25 units × $ 51)+(30 units × $ 52)+(40 units × $ 54)

= $ 6,495

D Gross profit (A-C)

(10,090-6,300)

= $ 3,790

(10,090-6,381)

= $ 3,709

(10,090-6,495)

= $ 3,595


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