Question

Problem 5-3A Perpetual: Alternative cost flows LO P1

Montoure Company uses a perpetual inventory system. It entered into the following calendar-year purchases and sales transactions

Date

Activities

Units Acquired at Cost

Units Sold at Retail

Jan.

1

Beginning inventory

620

units

@ $45 per unit

Feb.

10

Purchase

310

units

@ $42 per unit

Mar.

13

Purchase

120

units

@ $30 per unit

Mar.

15

Sales

770

units

@ $85 per unit

Aug.

21

Purchase

190

units

@ $50 per unit

Sept.

5

Purchase

520

units

@ $48 per unit

Sept.

10

Sales

710

units

@ $85 per unit

Totals

1,760

units

1,480

units

Required:
1. Compute cost of goods available for sale and the number of units available for sale.

2. Compute the number of units in ending inventory.

3. Compute the cost assigned to ending inventory using (a) FIFO, (b) LIFO, (c) weighted average, and (d) specific identification. For specific identification, units sold consist of 620 units from beginning inventory, 210 from the February 10 purchase, 120 from the March 13 purchase, 140 from the August 21 purchase, and 390 from the September 5 purchase.

4. Compute gross profit earned by the company for each of the four costing methods. (Round your average cost per unit to 2 decimal places.)

5. The company’s manager earns a bonus based on a percent of gross profit. Which method of inventory costing produces the highest bonus for the manager?

• LIFO

• Weighted Average

• Specific Identification

• FIFO

Answer 1

STATEMENT SHOWING INVENTORY RECORD UNDER PERPETUAL FIFO METHOD
	RECIEPTS	COST OF GOODS SOLD	BALANCE
DATE	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $
01-Jan							620	45	27900
10-Feb	310	42	13020				620	45	27900
							310	42	13020
13-Mar	120	30	3600				620	45	27900
							310	42	13020
							120	30	3600
15-Mar				620	45	27900	160	42	6720
				150	42	6300	120	30	3600
21-Aug	190	50	9500				160	42	6720
							120	30	3600
							190	50	9500
05-Sep	520	48	24960				160	42	6720
							120	30	3600
							190	50	9500
							520	48	24960
10-Sep				160	42	6720
				120	30	3600
				190	50	9500
				240	48	11520	280	48	13440
TOTAL	1140		51080	1480		65540	280		13440
STATEMENT SHOWING INVENTORY RECORD UNDER PERPETUAL LIFO METHOD
	RECIEPTS	COST OF GOODS SOLD	BALANCE
DATE	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $
01-Jan							620	45	27900
10-Feb	310	42	13020				620	45	27900
							310	42	13020
13-Mar	120	30	3600				620	45	27900
							310	42	13020
							120	30	3600
15-Mar				120	30	3600
				310	42	13020
				340	45	15300	280	45	12600
21-Aug	190	50	9500				280	45	12600
							190	50	9500
05-Sep	520	48	24960				280	45	12600
							190	50	9500
							520	48	24960
10-Sep				520	48	24960
				190	50	9500	280	45	12600
TOTAL	1140		51080	1480		66380	280		12600
STATEMENT SHOWING INVENTORY RECORD UNDER PERPETUAL WEIGHTED AVERAGE METHOD
	RECIEPTS	COST OF GOODS SOLD	BALANCE
DATE	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $
01-Jan							620	45	27900
10-Feb	310	42	13020				620	45	27900
							310	42	13020
Average							930	44	40920
13-Mar	120	30	3600				930	44	40920
							120	30	3600
Average							1050	42.4	44520
15-Mar				770	42.4	32648	280	42.4	11872
21-Aug	190	50	9500				280	42.4	11872
							190	50	9500
Average							470	45.47	21372
05-Sep	520	48	24960				470	45.47	21372
							520	48	24960
Average							990	46.8	46332
10-Sep				710	46.8	33228	280	46.8	13104
TOTAL	1140		51080	1480		65876	280	46.8	13104
STATEMENT SHOWING INVENTORY RECORD UNDER PERPETUAL SPECIFIC IDENTIFICATION METHOD
	RECIEPTS	COST OF GOODS SOLD	BALANCE
DATE	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $
Balance Oct1	620	45	27900	620	45	27900
Purchasse
10-Feb	310	42	13020	210	42	8820	100	42	4200
13-Mar	120	30	3600	120	30	3600
21-Aug	190	50	9500	140	50	7000	50	50	2500
05-Sep	520	48	24960	390	48	18720	130	48	6240
TOTAL	1760		78980	1480		66040	280		12940
Req 1.
Cost of goods available for sale		78980
Units of goods available for sale	1760
Req 2.
Units of Ending inventory:		280
Req 3.
			FIFO	LIFO	Average	Spec. Id.
Cost of Ending inventory	13440	12600	13104	12940
Req 4.
			FIFO	LIFO	Average	Spec. Id.
Sales revenue (1480*85)	125800	125800	125800	125800
Less: Cost of goods sold	65540	66380	65876	66040
Gross Profit		60260	59420	59924	59760
Req 5.
FIFO method