Question

Burke Ltd. began operations in February 2008 with 4,500 units of inventory that it purchased at a cost of $12.00 each. The company’s purchases during February were as follows:

Feb 6       3,500 units   @   $12.00

Feb 14       2,000 units   @    $11.80

Feb 23       8,200 units   @   $11.65

Feb 28       3,600 units   @   $11.40

Sales during February:

Feb 4       1,500 units

Feb 15       5,800 units

Feb 24       7,200 units

Burke uses a periodic inventory system.

Required:

a. Calculate the cost of goods sold for February using the weighted average cost flow assumption.

b. Calculate the cost of goods sold for February using the first-in, first-out cost flow assumption.

c. Which inventory cost flow assumption results in the greater net income for February? Which results in the smaller?

d. Which inventory cost flow assumption results in the larger inventory balance at the end of February? Which results in the smaller?

Answer 1

	Weighted average cost per unit
			units	per unit	total
	beginning invnetory		4500	12	54000
	6-Feb		3500	12	42000
	14-Feb		2000	11.8	23600
	23-Feb		8,200	11.65	95530
	28-Feb		3,600	11.4	41040
	total		21800		256170
		weighted average cost =256170/21800
				11.75092
	total sale units =		1500+5800+7200
			14500
a)	cost of goods sold
	14500*11.75092
	170388	answer
b)	cost of goods sold(FIFO)
			units	per unit	total
	beginning invnetory		4500	12	54000
	6-Feb		3500	12	42000
	14-Feb		2000	11.8	23600
	23-Feb		4,500	11.65	52425
	total		14500		172025
		cost of goods sold		$172,025
c)	Weighted average cost result in higher net income and FIFO result
	in smaller income
d)	weighted average result in larger inventory balance.FIFO results in
	smaller inventory balance