Chapter 6, Problem 5E

a.

To determine

Compute the amount of cost assigned to ending inventory and to the cost of goods sold under the Specific identification method (Periodic inventory system).

Explanation of Solution

Periodic inventory system:

The method or system of recording the transaction related to inventory occasionally or periodically is referred to as periodic inventory system.

Specific identification method:

Specific identification method identifies the cost of each item in ending inventory by separating purchases. In this method, the value of ending inventory is computed based on the lower of cost or market value.

Cost of goods sold:

Cost of goods sold is the accumulate total of all direct cost incurred in manufacturing the goods or the products which has been sold during a period. Cost of goods sold involves direct material, direct labor, and manufacturing overheads.

Ending Inventory:

It represents the quantity and price of the goods unsold and laying at the store at the end of a particular period.

Compute the amount of cost assigned to ending inventory and to the cost of goods sold under the Specific identification method:

• Ascertain the amount of cost that would be allocated to ending inventory as follows:

FIFO	Units	Unit Cost ($)	Ending Inventory ($)
January 30	180	$4.50	$810
January 20	5	5	25
Beginning Inventory	15	6	90
Total	200		$925

Table (1)

• Ascertain the amount of cost that would be allocated to cost of goods sold as follows:

FIFO	Units	Unit Cost  ($)	Cost of Goods Sold ($)
Goods Available for Sale	380 Table (3)		$1,950
Less: Ending inventory			925
Cost of Goods Sold	200 Table (1)		$1,025

Table (2)

Working note:

Calculate total purchase:

Particular	Unit	Unit cost ($)	Total cost ($)
Beginning Inventory	140	$6	$840
January 20	60	5	300
January 30	180	72	810
Goods Available for Sale	380		$1,950
Less: Cost of goods sold	180
Ending inventory	200

Table (3)

b.

To determine

Compute the amount of cost assigned to ending inventory and to the cost of goods sold under the weighted average method.

Explanation of Solution

Weighted-average cost method:

Under Weighted average cost method, the company calculates a new average cost after every purchase is made. It is determined by dividing the cost of goods available for sale by the units on hand.

Compute the amount of cost assigned to ending inventory and to the cost of goods sold under the weighted average method as follows:

Particular	Unit	Unit cost ($)	Total cost ($)
Cost of Goods Sold	180	$5.13 (1)	$923.4
Ending Inventory	200	$5.13 (1)	$1,026

Table (4)

Determine average unit cost:

$\begin{array}{c}\text{Average Unit cost}=\frac{\text{Goods avaivable for sale}}{\text{Total Units}}\\ =\frac{\text{\$1,950 Table}\left(\text{3}\right)}{380}\\ =\text{\$5}\text{.13}\end{array}$ (1)

c.

To determine

Compute the amount of cost assigned to ending inventory and to the cost of goods sold under the FIFO method.

Explanation of Solution

First-in-First-Out:

In First-in-First-Out method, the costs of the initially purchased items are considered as cost of goods sold, for the items which are sold first. The value of the ending inventory consists of the recent purchased items.

First-in-First-Out:

In First-in-First-Out method, the costs of the initially purchased items are considered as cost of goods sold, for the items which are sold first. The value of the ending inventory consists of the recent purchased items.

Compute the amount of cost assigned to ending inventory and to the cost of goods sold under the FIFO method as follows:

• Ascertain the amount of cost that would be allocated to ending inventory as follows:

FIFO	Units	Unit Cost  ($)	Ending Inventory ($)
January 30	180	$4.5	810
January 20	20	5	100
Total			910

Table (5)

• Ascertain the amount of cost that would be allocated to cost of goods sold as follows:

FIFO	Units	Unit Cost ($)	Cost of Goods Sold ($)
Beginning Inventory	140	$6	$840
January 30	40	5	200
Total	180		$1,040

Table (6)

d.

To determine

Compute the amount of cost assigned to ending inventory and to the cost of goods sold under the LIFO method.

Explanation of Solution

Last-in-First-Out:

In Last-in-First-Out method, the costs of last purchased items are considered as the cost of goods sold, for the items which are sold first. The value of the closing stock consists of the initial purchased items.

Compute the amount of cost assigned to ending inventory and to the cost of goods sold under the LIFO method as follows:

• Ascertain the amount of cost that would be allocated to ending inventory as follows:

FIFO	Units	Unit Cost ($)	Ending Inventory ($)
Beginning Inventory	140	$6	$840
January 30	60	5	300
Total	180		$1,140

Table (7)

• Ascertain the amount of cost that would be allocated to cost of goods sold as follows:

LIFO	Units	Unit Cost	Cost of Goods Sold
January 30	180	$4.5	810
Total	180		$810

Table (8)