Question

Sam's Corner Store has the following purchase and sales information for one of their inventory items: Date Units $/Unit Total Feb 1 Opening inventory 10 $8 $80 Feb 9 Purchase 25 $9 $225 Feb 15 Sale 15 $15 $225 Feb 17 Purchase 20 $11 $220 Feb 25 Sale 10 $16 $160 Required: For (a) and (b) assume the company uses the periodic inventory system. (a) Calculate the gross profit if the company uses first-in, first-out (FIFO) (b) Calculate the value of the ending inventory if the company uses weighted average. For (c) and (d) assume the company uses the perpetual inventory system. (c) What is the cost of goods sold for the Feb 25 sale if the company uses weighted average to cost the inventory? (d) What is the value of the ending inventory if the company uses FIFO?

Subject-Accounting

Answer 1

PERIODIC INVENTORY METHOD

(a) Gross profit as per FIFO method = $170

(b) Ending Inventory as per weighted average method = $286.5

PERPETUAL INVENTORY METHOD

(c) Cost of goods sold as per weighted average method = $238.75

(d) Ending Inventory as per FIFO method = $310

EXPLANATION:

Date	Description	No. Of units " cost per unit	Amount ($)
Feb 1	Beginning inventory	10 units @ $8	80
Feb 9	Purchase	25 units @ $9	225
Feb 15	Sale	15 units @ $15	225
Feb 17	Purchase	20 units @ $11	220
Feb 25	Sale	10 units @ $16	160

(a)

PERIODIC INVENTORY SYSTEM

FIFO METHOD

Cost of goods sold :

Out of 15 units = [(10*$8)+(5*$9)] = $125

10 units = 10*$ 9 = $90

Total cost of goods sold = $125 + $90

= $215

Ending inventory = [(10*$9)+(20*$11)]

= $310

Sales revenue = [(15*$15)+(10*$16)]

=$385

Gross profit = Sales revenue - cost of goods sold

= $385 - $215

= $170

(b)

WEIGHTED AVERAGE METHOD

Total number of units available = (10+25+20)

= 55 units

Total cost = ($80+$225+$220)

= $525

Weighted average cost per unit = Total cost/Total number of units

= $525/55

=$9.55

Total number of units available = 55

Number of units sold = 25

Ending inventory = 55 - 25

= 30 units

Value of ending inventory = 30*$9.55

= $ 286.5

PERPETUAL INVENTORY SYSTEM:

(c)

WEIGHTED AVERAGE METHOD

Total number of units available = (10+25+20)

= 55 units

Total cost = ($80+$225+$220)

= $525

Weighted average cost per unit = Total cost/Total number of units

= $525/55

=$9.55

Number of units sold = 25

Cost of goods sold = 25 units * $9.55

= $238.75

(d)

FIFO METHOD

Date	Description	Purchase	Cost of goods sold	Ending Inventory
Feb 1	Beginning inventory: 10 units *$8 = $80			10 units *$8 = $80
9	Purchase	25 units*$9 = $225		[(10*8)+(25*9)] = $305
15	Sale		15 units= [(10*8)+(5*9)] = $125	20 units *$9 = 180
17	Purchase	20 units*$11 = $220		[(20*$9)+(20*$11)] = $400
25	Sale		10 units *$9 = $90	[(10*$9)+(20*$11)] = $310
	Total		$215	$310

Value of ending inventory =

[(10*$9)+(20*$11)]

= $310

Thank you :)