Question

In its first month of operations, Literacy for the Illiterate opened a new bookstore and bought merchandise in the following order: (1) 340 units at $9 on January 1, (2) 630 units at $10 on January 8, and (3) 930 units at $12 on January 29. Assume 1,170 units are on hand at the end of the month, calculate the cost of goods available for sale, ending inventory, and cost of goods sold under the weighted average cost flow assumptions. Assume a periodic inventory system is used. (Round "Cost per Unit" to 2 decimal places.)

Answer 1

Solution:

Calculation of cost of goods available for sale as per the Weighted average cash flow assumption :

As per the information given in the question we have

Purchases on January 1 : 340 units at $ 9 = $ 3,060

Purchases on January 8 : 630 units at $ 10 = $ 6,300

Purchases on January 29 : 930 units at $ 12 = $ 11,160

Total units available for sale = (Purchases on January 1 + Purchases on January 8 + Purchases on January 29 )

= 340 units + 630 units + 930 units

= 1900 units

The cost of Goods available for sale is calculated as follows

= ( Units Purchased on January 1 * Price per unit on January 1 ) + ( Units Purchased on January 8 * Price per unit on January 8 ) + ( Units Purchased on January 29 * Price per unit on January 29 )

= ( 340 * $ 9 ) + ( 630 * $ 10 ) + ( 930 * $ 12 )

= $ 3,060 + $ 6,300 + $ 11,160

= $ 20,520

Thus cost of Goods available for sale = $ 20,520

Calculation of Ending Inventory:

As per the Information given in the question

Closing Inventory = 1,170 units

The weighted average cost per unit is calculated as follows :

= [ ( Units Purchased on January 1 * Price per unit on January 1 ) + ( Units Purchased on January 8 * Price per unit on January 8 ) + ( Units Purchased on January 29 * Price per unit on January 29 ) ] / (Purchases on January 1 + Purchases on January 8 + Purchases on January 29 )

= [ ( 340 * $ 9 ) + ( 630 * $ 10 ) + ( 930 * $ 12 ) ] / ( 340 + 630 + 930 )

= [ $ 3,060 + $ 6,300 + $ 11,160 ] / 1900

= $ 20,520 / 1900

= $ 10.80 per unit

Thus the value of closing inventory as per Weighted average cost formula is

= Closing Inventory in units * Weighted average cost per unit

= 1,170 * $ 10.80

= $ 12,636

Thus the value of closing Inventory = $ 12,636

Calculation of Cost of goods sold:

As per the Information given in the question

Total number of goods available for sale = 1900 units

Closing Inventory = 1,170 units

Thus the Number of units of Goods sold = Total number of goods available for sale - Closing Inventory

= 1,900 Units – 1,170 Units

= 730 Units

Thus the value of Cost of Goods sold as per Weighted average cost formula is

= Cost of Goods sold in units * Weighted average cost per unit

= 730 * $ 10.80

= $ 7,884

Thus the value of Cost of Goods sold = $ 7,884