This document provides information to calculate the cost of goods sold and ending inventory using different cost flow assumptions (FIFO, average cost, LIFO) for multiple inventory purchase and sales transactions throughout several periods. It includes the units purchased and sold, unit costs, calculations of cost of goods sold and ending inventory for each period and cost flow method. The document concludes that using an average cost method results in a higher cost of goods sold and lower gross profit compared to FIFO in a period of rising costs. It also states that FIFO provides a higher ending inventory value representing the most current costs.
This document provides information to calculate the cost of goods sold and ending inventory using different cost flow assumptions (FIFO, average cost, LIFO) for multiple inventory purchase and sales transactions throughout several periods. It includes the units purchased and sold, unit costs, calculations of cost of goods sold and ending inventory for each period and cost flow method. The document concludes that using an average cost method results in a higher cost of goods sold and lower gross profit compared to FIFO in a period of rising costs. It also states that FIFO provides a higher ending inventory value representing the most current costs.
This document provides information to calculate the cost of goods sold and ending inventory using different cost flow assumptions (FIFO, average cost, LIFO) for multiple inventory purchase and sales transactions throughout several periods. It includes the units purchased and sold, unit costs, calculations of cost of goods sold and ending inventory for each period and cost flow method. The document concludes that using an average cost method results in a higher cost of goods sold and lower gross profit compared to FIFO in a period of rising costs. It also states that FIFO provides a higher ending inventory value representing the most current costs.
This document provides information to calculate the cost of goods sold and ending inventory using different cost flow assumptions (FIFO, average cost, LIFO) for multiple inventory purchase and sales transactions throughout several periods. It includes the units purchased and sold, unit costs, calculations of cost of goods sold and ending inventory for each period and cost flow method. The document concludes that using an average cost method results in a higher cost of goods sold and lower gross profit compared to FIFO in a period of rising costs. It also states that FIFO provides a higher ending inventory value representing the most current costs.
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Lecture 8 Answer
Q1
Cost of Goods Available for Sale
Date Explanation Units Unit Cost Total Cost October 1 Beginning inventory 60 $24 $1,440 9 Purchase 120 26 3,120 17 Purchase 100 27 2,700 25 Purchase 70 29 2,030 350 $9,290
Ending Inventory in Units Sales revenue
Unit Units available for sale 350 Date Units Price Total Sales Sales (100 + 60 + 110) 270 October 11 100 $35 $ 3,500 Units remaining in ending inventory 80 22 60 40 2,400 29 110 40 4,400 270 $10,300
(a) (i) FIFO
(i) Ending inventory (ii) Cost of goods sold
Cost of goods available October 25 70 @ $29 = $2,030 for sale $9,290 October 17 10 @ $27 = $ 270 Less: Ending inventory 2,300 80 $2,300 Cost of goods sold $6,990
(iii) Gross profit (iv) Gross profit rate
Sales revenue $10,300 Gross profit $3,310 = =32.1% Cost of goods sold 6,990 Net sales $10,300 Gross profit $ 3,310
1 (ii) Average-Cost Cost of goods available for sale Weighted-average cost per unit: Units available for sale $9,290 =$26.543 350
(i) Ending inventory (ii) Cost of goods sold
Cost of goods available 80 @ $26.543 = $2,123* for sale $9,290 *rounded to nearest dollar Less: Ending inventory 2,123 Cost of goods sold $7,167
(iii) Gross profit (iv) Gross profit rate
Sales revenue $10,300 Gross profit $3,133 = =30.4% Cost of goods sold 7,167 Net sales $10,300 Gross profit $ 3,133
(b) Average cost produces lower ending inventory value, gross profit, and gross profit rate because its cost of goods sold is higher than FIFO.
2 Question 2(a)
Sales: Date January 6 180 @ $40 $ 7,200 January 10 50 @ $45 2,250 January 30 130 @ $48 6,240 Total sales $15,690
(a) FIFO Date Purchases Cost of goods sold Balance January 1 (160 @ $20) $3,200 January 2 (100 @ $22) $2,200 (160 @ $20) $5,400 (100 @ $22) January 6 (160 @ $20) (20 @ $22) $3,640 (80 @ $22) $1,760 January 9 (75 @ $24) $1,800 (80 @ $22) (75 @ $24) $3,560 January 10 (50 @ $22) $1,100 (30 @ $22) (75 @ $24) $2,460 January 23 (100 @ $25) $2,500 (30 @ $22) (75 @ $24) $4,960 (100 @ $25) January 30 (30 @ $22) (75 @ $24) $3,085 (75 @ $25) $1,875 (25 @ $25) $7,825 (i) Cost of goods sold: $7,825. (ii) Ending inventory = $1,875. (iii) Gross profit = $15,690 – $7,825 = $7,865.
(b) Moving-Average: Date Purchases Cost of goods sold Balance January 1 (160 @ $20) $3,20 0 January 2 (100 @ $22) (260 @ $5,40 $2,200 $20.769)a 0 January 6 (180 @ $20.769) (80 @ $1,66 $3,738* $20.769) 2 January 9 (75 @ $24) $1,800 (155 @ $3,46 $22.335)b 2 January 10 (50 @ $22.335) (105 @ $2,34 $1,117 $22.335) 5 January 23 (100 @ $25) (205 @ $4,84 $2,500 $23.634)c 5 January 30 (130 @ $23.634) (75 @ $1,77
3 $3,072 $23.634) 3 $7,927 a c $5,400 ÷ 260 = $20.769 $4,845 ÷ 205 = $23.634 b $3,462 ÷ 155 = $22.335 *Rounded
(i) Cost of goods sold: $7,927. (ii) Ending inventory = $1,773. (iii) Gross profit = $15,690 – $7,927 = $7,763.
(b) Gross profit: Moving- FIFO Average Sales $15,690 $15,690 – Cost of goods sold 7,825 7,927 Gross profit $ 7,865 $ 7,763 Ending Inventory $ 1,875 $ 1,773
In a period of rising costs, the Moving Average cost flow
assumption results in higher cost of goods sold and lower gross profit.
On the balance sheet, FIFO gives the higher ending inventory
(representing the most current costs) compared to moving-average cost.
(b) The highest ending inventory is $213 under the FIFO method.
6 EXTRA QUESTION
(a) i. First in First Out (LIFO)
Date Purchase Cost of goods sold Balance
Unit @ RM Unit @ value Unit price RM
Jan 1 45 10 450 Mar 13 25 10 250 20 10 200 May 20 50 9 450 20 10 200 50 9 450 July 30 20 10 200 30 9 270 20 9 180 Oct 31 25 8 200 20 9 180 25 8 200 Dec 31 15 9 135 5 9 45 25 8 200 30 245
Closing inventory = RM245
Cost of good sold = RM 855
ii. Weighted Average Costing ( WAC)
Date Purchase Cost of goods sold Balance
unit @ RM unit @ RM Unit @ RM Jan 1 45 10 450 Mar 13 25 10 250 20 10 200 May 20 50 9 450 20 10 200 50 9 450 70 9.29 650 July 30 50 9.29 464.5 20 9.29 185.5 Oct 31 25 8 200 20 9.29 185.5 25 8 200 45 8.57 385.5 Dec 31 15 8.57 128.55 30 8.57 256.95
Closing inventory = RM256.95
Cost of goods sold = RM 843.05
7 (b)
Mawi Enterprise Income statement for the year ended 31 December 2019 RM RM Sales 1,070 Less: Cost of goods sold Opening inventory 450 Add: Purchases 650 Cost of goods available for sale 1100 Less: Closing inventory 280 820 Gross profit 250
