Question

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The following transactions affected Alpenrose Corporation’s merchandise inventory during the month of March 2016: March 1...

The following transactions affected Alpenrose Corporation’s merchandise inventory during the month of March 2016: March 1 — Inventory on hand — 3,000 units; cost $8.00 each. March 8 — Purchased 5,000 units for $8.20 each on account. March 14 — Sold 4,000 units for $14.00 each on account. March 18 — Purchased 6,000 units for $8.40 each on account. March 25 — Sold 2,000 units for $14.00 each on account. March 31 — Inventory on hand — 8,000 units.

Alpenrose uses periodic inventory system. Determine the inventory balance Alpenrose would report on its March 31, 2016, balance sheet and the cost of goods sold it would report on its March 2016, income statement using each of the following cost flow methods:

         1.       First-in, first-out (FIFO)

         2.       Last-in, first-out (LIFO)

         3.       Average cost (round the average cost per unit to the nearest dollar)

Solutions

Expert Solution

Answer) FIFO Method , stock value at the end of each day

March 1 — Inventory on hand — 3,000 units; cost $8.00 each. = $24000

March 8 — Purchased 5,000 units for $8.20 each on account. = $41000

Hence, Stock value = 24000+ 41000 = $ 65000

March 14 — Sold 4,000 units for $14.00 each,{ 3000 units from opening inventory and 1000 units from purchased units}, Remaining stock value = 4000 units @$8.20 each and

Cost of goods sold = 3000×8 + 1000× 8.2=> $32,200

March 18 — Purchased 6,000 units for $8.40 each on account, stock value = 4000×8.2 + 6000× 8.4 =$83,200

March 25 — Sold 2,000 units for $14.00 each on account.{ sold 2000 units out of 4000 units which where purchased @$ 8.20 each}

Cost of goods sold = 2000× 8.2 => $16,400

March 31 — Inventory on hand — 8,000 units costing $66,800{ 2000 units costing $8.20 each and 6000 units costing $8.40 each.

Hence, Closing stock value =$ 66,800

Cost of goods sold = 32,200+16400 => $48,600

1) LIFO METHOD

March 1 — Inventory on hand — 3,000 units; cost $8.00 each = $24,000

March 8 — Purchased 5,000 units for $8.20 each on account = $ 41000

Hence stock value = 24000+ 41000= $65,000

March 14 — Sold 4,000 units for $14.00 each on account.{sold out of units purchased @8.20 per unit}

Hence,Remaining stock value =$24,000 + $8200=> $32,200

Cost of goods sold = 4000× 8.20 = 32,800

March18 — Purchased 6,000 units for $8.40 each on account.

Hence ,Stock value = 32,200 + 6000× 8.40 => $82,600

March 25 — Sold 2,000 units for $14.00 each on account.{ sold out of units purchased @8.40 per unit }

Hence, Stock value remaining = 32,200 + 4000× 8.40 => $65,800

Cost of goods sold = 2000× 8.40 = $16,800

March 31 — Inventory on hand — 8,000 units;

Stock value= $ 65,800

Cost of goods sold = 32800 + 16800 => $ 49,600

3) Weighted Average method

March 1 — Inventory on hand — 3,000 units; cost $8.00 each. =$24000

March 8 — Purchased 5,000 units for $8.20 each on account,

Total units = 8000,

cost per unit = (24000+ 5000× 8.2)/ 8000

= 8.125 per unit.

March 14 — Sold 4,000 units for $14.00 each on account.

Stock remaining value = 4000 units at $8.125 per each unit =32500

Cost of goods sold = 4000 × 8.125 = 32500

March 18 — Purchased 6,000 units for $8.40 each on account.

Total units =10000 units

= (32500 + 6000×8.40)/10000 = 8.29 per unit

March 25 — Sold 2,000 units for $14.00 each on account.

Stock remaining => 8000 @ 8.29 per unit.

Cost of goods sold = 2000 × 8.29 =$ 16,580

March 31 — Inventory on hand — 8,000 units.

Closing stock value = 8000× 8.29 = $66,320

Cost of goods sold = 32500+16580 => $49,080


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