Chapter 6, Problem 2AAPSA

To determine

Requirement1:

Concept Introduction:

Goods available for sale:

The Goods available for sale means that the total goods in hand which can be offered to the customers for sale. This can be expressed in terms of dollars and units. The Total Goods in hand can be computed as a sum of inventory in hand in the beginning of the period and Inventories purchased during the period.

To Determine: TheCost and number of units available for sale.

Explanation of Solution

TheCost of goods available for sale is computed by adding up the cost of goods in hand in the beginning of the period and cost of inventory purchased during the period. And the number of units available f or sale is computed as on the same lines but in units terms.

Cost and Units of Goods available for sale:
DATE	UNITS	RATE	AMOUNT $
Mar 1: Beg. Inventory	100	50	5000
Purchase
5-Mar	400	55	22000
18-Mar	120	60	7200
25-Mar	200	62	12400
Goods Available for sale	820		46600

To determine

Requirement2:

Ending Inventory:

Ending Inventory units means the number of units left over from the total goods available for sale after units sold deducted from it.

To determine: The Number of Ending Inventory Units.

Explanation of Solution

The ending Inventory units is a difference between units of goods available for sale and units sold and has been computed as under:

Ending Inventory Units:
	UNITS
Units available for sale	820
Less: Units sold
Mar-9 Sales	420
Mar-29 Sales	160
Ending Inventory Units:	240

To determine

Requirement3-a:

First in First Out: The first in first out method of assigning the cost to goods sold is based on the principle that the goods that are entered first in the store room shall be issued first for sale and hence the cost shall be recorded at its initial prices of goods entered in store room. The periodic Inventory system means the records are maintained only at the end of period.

To determine: The Cost assigned to ending Inventory under FIFO.

Explanation of Solution

The FIFO method of period inventory suggests that the goods issued for sale on a particular date shall be assigned cost on the basis of cost of oldest material lies in the store during the end of period.

The Ending Inventory shall be computed as under:

STATEMENT SHOWING INVENTORY RECORD UNDER PERIODIC FIFO METHOD
	RECIEPTS			COST OF GOODS SOLD			BALANCE
DATE	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $
Balance Oct1	100	50	5000	100	50	5000
Purchase
5-Mar	400	55	22000	400	55	22000
18-Mar	120	60	7200	80	60	4800	40	60	2400
25-Mar	200	62	12400				200	62	12400
TOTAL	820		46600	580		31800	240		14800

Therefore, Ending Inventory is 240 units of $14800.

To determine

Requirement3-b:

Last in First Out: The Last in first out method of assigning the cost to goods sold is based on the principle that the goods that are entered recently in the store room shall be issued first for sale and hence the cost shall be recorded at its recent prices of goods entered in store room. The periodic Inventory system means the records are maintained at the end of period.

To determine: The Cost assigned to ending Inventory under LIFO.

Explanation of Solution

The LIFO method of periodic inventory suggests that the goods issued for sale on a particular date shall be assigned cost on the basis of cost of newest material lies in the store at the end of period.

The Ending Inventory shall be computed as under:

STATEMENT SHOWING INVENTORY RECORD UNDER PERIODIC LIFO METHOD
	RECIEPTS			COST OF GOODS SOLD			BALANCE
DATE	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $
Balance Oct1	100	50	5000				100	50	5000
Purchase
5-Mar	400	55	22000	260	55	14300	140	55	7700
18-Mar	120	60	7200	120	60	7200
25-Mar	200	62	12400	200	62	12400
TOTAL	820		46600	580		33900	240		12700

Therefore, Ending Inventory is 240 units of $12700.

To determine

Requirement3-c:

Weighted Average: The Weighted Average method of issuing inventory is based on principle that the goods shall be issued at an average of prices of goods which are lying in the store room at the end of period. The periodic Inventory system means the records are maintained at the end of period.

To determine: The Cost assigned to ending Inventory under Weighted average.

Explanation of Solution

The Weighted Average method of periodic inventory suggests that the goods issued for sale on a particular date shall be assigned cost on the basis of average cost of material lies in the store during the period.

The Ending Inventory shall be computed as under:

STATEMENT SHOWING INVENTORY RECORD UNDER PERIODIC WEIGHTED AVERAGE METHOD
	RECIEPTS			COST OF GOODS SOLD			BALANCE
DATE	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $
Balance Oct1	100	50	5000
Purchase
5-Mar	400	55	22000
18-Mar	120	60	7200
25-Mar	200	62	12400
TOTAL	820	56.83	46600	580	56.83	32961	240	56.83	13639

Therefore, Ending Inventory is 240 units of $13639.

To determine

Requirement3-d:

Specific Identification: Specific Identification method of assigning the cost to goods sold is based on the principle that the goods that have been issued for sale has been specifically identified to be issued from the particular lot of material. Therefore, the cost of that particular lot shall be assigned on the same. The periodic Inventory system means the records are maintained at the end of period.

To determine: The Cost assigned to ending Inventory under Specific Identification.

Explanation of Solution

The Specific Identification method of periodic inventory suggests that the goods issued for sale on a particular date shall be assigned cost on the basis of cost of material specifically identified as issued from the store at the end of period.

The Ending Inventory shall be computed as under:

STATEMENT SHOWING INVENTORY RECORD UNDER PERIODIC SPECIFIC IDENTIFICATION METHOD
	RECIEPTS			COST OF GOODS SOLD			BALANCE
DATE	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $
Balance Oct1	100	50	5000	80	50	4000	20	50	1000
Purchase
5-Mar	400	55	22000	340	55	18700	60	55	3300
18-Mar	120	60	7200	40	60	2400	80	60	4800
25-Mar	200	62	12400	120	62	7440	80	62	4960
TOTAL	820		46600	580		32540	2400		14060

Therefore, Ending Inventory is 240 units of $14060.

To determine

Requirement4:

Gross Profits: Gross Profits means excess of sales revenue over the cost of goods sold.

To determine:Gross profits earned by the company under various methods.

Explanation of Solution

The Gross profits is computed as a difference between the sales revenue and cost of goods sold as assigned under various methods and has been computed as under:

Statement showing Gross Profits earned:
				FIFO	LIFO	Weighted	Specific
						Average	Identification
Sales revenue:
9-Mar	420 units @ 85 per unit			35700	35700	35700	35700
29-Mar	160 units @ 95 per unit			15200	15200	15200	15200
Total sales revenue				50900	50900	50900	50900
Less: Cost of goods sold (as computed Above)				31800	33900	32961	32540
Gross Margin				19100	17000	17939	18360