Question

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

600

units

@ $40 per unit

Feb.

10

Purchase

360

units

@ $37 per unit

Mar.

13

Purchase

150

units

@ $25 per unit

Mar.

15

Sales

765

units

@ $80 per unit

Aug.

21

Purchase

200

units

@ $45 per unit

Sept.

5

Purchase

580

units

@ $42 per unit

Sept.

10

Sales

780

units

@ $80 per unit

Totals

1,890

units

1,545

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 600 units from beginning inventory, 260 from the February 10 purchase, 150 from the March 13 purchase, 150 from the August 21 purchase, and 385 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?

• Specific Identification

• FIFO

• Weighted Average

• LIFO

Answer 1

Correct Answer:

Requirement 1:

Cost of Goods Available for sale
		Units	Cost per unit	value
Beginning Inventory		600	$                         40.00	$                 24,000.00
Purchases
10-Feb		360	$                         37.00	$                 13,320.00
13-Mar		150	$                         25.00	$                   3,750.00
21-Aug		200	$                         45.00	$                   9,000.00
05-Sep		580	$                         42.00	$                 24,360.00
Total		1890	units	$                 74,430.00

Requirement 2:

Total Units Available for sale	1890
Less: Units Sold	1545
Ending Inventory Units	345

Requirement 3:

	FIFO
A	Total Units Available for sale				1890					$          74,430.00
	Units Sold				1545
	Ending Inventory Units				345
	Valuation
	Cost of Goods Sold			600				$                         40.00		$          24,000.00
				360				$                         37.00		$          13,320.00
				150				$                         25.00		$            3,750.00
				200				$                         45.00		$            9,000.00
				235				$                         42.00		$            9,870.00
										$                         -
B	Cost of Goods Sold			1545	units					$          59,940.00
A-B	Ending Inventory			345	units					$          14,490.00
	LIFO
A	Total Units Available for sale					1890			$          74,430.00
	Units Sold					1545
	Ending Inventory Units					345
	Valuation
	Cost of Goods Sold		150.00				$                         25.00		3,750.00
			360.00				$                         37.00		13,320.00
			255.00				$                         40.00		10,200.00
			580.00				$                         45.00		26,100.00
			200.00				$                         42.00		8,400.00
B	Cost of Goods Sold		1545			units			$          61,770.00
A-B	Ending Inventory		345			units			$          12,660.00

	Weighted Average
A	Total Units Available for sale			1890		$          74,430.00
	Units Sold			1545
	Ending Inventory Units			345
	Valuation
	Cost of Goods Sold		765		$                         37.00	$          28,305.00
			780		$                         41.00	$          31,980.00
B	Cost of Goods Sold		1545	units		$          60,285.00
A-B	Ending Inventory		345	units		$          14,145.00

Specific Identifications
Date	Goods Available for sale			Cost of Goods Sold			Ending Inventory Balance
	# of Units	Cost Per Unit	Cost of Goods Available for sale	# of Units Sold	Cost per Unit	Cost of Goods Sold	# of Units	Cost per Unit	Inventory Balance
Beginning Inventory	600	$          40.00	$       24,000.00	600	$    40.00	$    24,000.00	0	$        40.00	$                    -
Purchases
10-Feb	360	$          37.00	$       13,320.00	260	$    37.00	$      9,620.00	100	$        37.00	$       3,700.00
13-Mar	150	$          25.00	$         3,750.00	150	$    25.00	$      3,750.00	0	$        25.00	$                    -
21-Aug	200	$          45.00	$         9,000.00	150	$    45.00	$      6,750.00	50	$        45.00	2,250.00
05-Sep	580	$          42.00	$       24,360.00	385	$    42.00	$    16,170.00	195	$        42.00	$       8,190.00
Totals	1890		$       74,430.00	1545		$    60,290.00	345		$    14,140.00

Requirement 4:

	FIFO	LIFO	Weighted Average	Specific identification
Sales Revenue	$                123,600.00	$                123,600.00	$                    123,600.00	$             123,600.00
Cost of goods sold	$                   59,940.00	$                  61,770.00	$                      60,285.00	$ 60,290
Gross profit	$                   63,660.00	$                  61,830.00	$                      63,315.00	$               63,310.00

Requirement 5:

FIFO inventory costing method will result in highest earning of bonus since it has the highest gross profit.

End of answer.

Thanks.