Question

Auto Resales, Inc. started business on January 1, 20X1 (beginning inventory balance is zero). On January 1, 20X1 the company purchased all of the inventory for their used car sales lot. Purchase information is:

Total cost of the cars purchased	$1,500,000
Number of cars purchased	100

Types of cars, number of cars, and sales price per car are as follows:

	Number purchased	Sales price per car
Ford	20	$10,000
Lexus	40	$20,000
BMW	40	$25,000
Total number of lots	100

During the year, Auto Resales, Inc. sold the following cars:

Ford	8
Lexus	10
BMW	30
Total cars sold	48

Ending inventory in units

52

Using the relative sales value approach, what is the cost allocated to each Lexus car?

Using the relative sales value approach, what is the total cost of goods sold for 20X1?

Answer 1

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Auto Resales, Inc.
Answer 1- Allocation of costs	Ford	Lexus	BMW	Total	Note
Final sales price	10,000.00	20,000.00	25,000.00		A
Units purchased	20.00	40.00	40.00		B
Relative Sales value	200,000.00	800,000.00	1,000,000.00	2,000,000.00	C=A*B
Allocation rate	10.00%	40.00%	50.00%	100.00%	D=C/Sum of C
Total cost of the cars purchased	1,500,000.00	1,500,000.00	1,500,000.00		E
Costs allocated	150,000.00	600,000.00	750,000.00	1,500,000.00	F=E*D
Costs allocated to each car	7,500.00	15,000.00	18,750.00		G=F/B
Answer 2- Costs of goods sold	Ford	Lexus	BMW	Total
Costs per car	7,500.00	15,000.00	18,750.00		See G
Units sold	8.00	10.00	30.00		H
Total cost of goods sold	60,000.00	150,000.00	562,500.00	772,500.00	I=G*H