Question

During 2017, Fresh Express Company sold 2,530 units of its product on September 20 and 3,150 units on December 22, all at a price of $93 per unit. Incurring operating expenses of $17 per unit sold, it began the year with and made successive purchases of the product as follows:

January 1 beginning inventory	630	units	@	$	38	per unit
Purchases:
February 20	1,530	units	@	$	40	per unit
May 16	730	units	@	$	44	per unit
December 11	3,330	units	@	$	45	per unit
Total	6,220	units

Required:
Prepare a comparative income statement for the company, showing in adjacent columns the profits earned from the sale of the product, assuming the company uses a perpetual inventory system and prices its ending inventory on the basis of (a) FIFO and (b) Moving weighted average:

Answer 1

Ans. Note 1: Calculation of Cost of Goods sold using FIFO method

Cost of sold 2530 units on september 20

Cost Jan 1 Begning (630X38 )     = 23940

Purchase Feb 20 (1530X40)           = 61200

May 16 Purhcase (370X44)            = 16280

Cost of sale 3150 units dec

May 16 Bal unit (730-370)X44         = 15840

Dec 11 (3150-360)X44                      = 122760

Total cost goods sold                        = 240020

Note 2 Calculation of Cost of goods sold using Weighted Average method

Step 1: Cost of goods sold 2530 units sold on sept 20

Weighted Average cost purchase till may 16 (630X38+1530X40+730X44)/2890 =

                                                                              = (23940+61200+32120)/2890 = 40.57 per units

Balance unit after selling 2530 units on sept 20 (2890-2530) = 360 units @40.57

Weighted Average cost of purchase after purhcse of 3330 units =(360X40.57+3330X45)/3690

                                                                             = (14605+149850)/3690 = 44.57

Step 3: Calculation of Cost of goods sold using weighted average

For selling 2530 unis on 20 sept (40.57X2530) =     102642

For selling 3150 units Dec 22 (3150X44.57) = 140395

Total cost of goods sold for (2530+3150) units     =      243038

                                          Comparative Income Statement

                                                    unit sold (2530+3150) = 5680 units

                                                      FIFO method                    Weighted Average

Sales (5680X93)                         528240                                528240

Cost of goods sold                     240020                                243038

Operating Exp. (5680X17)         96560                                   96560

Profit                                              191660                                 188642

Calculation of Ending Inventory if FIFO is method is used (540X45) = 24300

Calculation of ending inventory if weighted averagge method is used (540X44.57) = 24068