Chapter 6, Problem 6.1BP

Calculate ending inventory and cost of goods sold for four inventory methods (LO6–3)

PROBLEMS: SET B

Jimmie’s Fishing Hole has the following transactions related to its top-selling Shimano fishing reel for the month of June:

  Requited:

  1.    Calculate ending inventory and cost of goods sold at June 30, using the specific identification method The June 7 sale consists of fishing reels from beginning inventory, the June 15 sale consists of three fishing reels from beginning inventory and nine fishing reels from the June 12 purchase, and the June 27 sale consists of one fishing reel from beginning inventory and seven fishing reels from the June 21 purchase.

  2.    Using FIFO, calculate ending inventory and cost of goods sold at June 30.

  3.    Using LIFO, calculate ending inventory arid cost of goods sold at June 30.

  4.    Using weighted average cost, calculate ending inventory and cost of goods sold at June 30.

To determine

To Compute: The ending inventory and cost of goods sold using the specific identification method.

Explanation of Solution

Specific identification method:

Specific identification method is a method in which the company records each item of the inventory at its original cost. Under this method, when the goods are sold, the company can easily identify the original costs at which they were purchased for. This method helps in arriving at the accurate cost of goods sold, and ending inventory.

Calculate the units of ending inventory.

Calculation of Ending Inventory
Details	Number of Units	Rate Per Unit ($)	Total Cost ($)
Beginning balance	16
Less: Sales – June 7	(11)
Less: sales– June 15	(3)
Less: Sales –June 27	(1)
Balance	1	350	350
Purchases:
June 12	10
Less: Sales – June 15	(9)
Balance	1	340	340
Purchases:
June 24	10
Less: October 28	(7)		-
Balance	3	330	990
June 29	9	320	2,880
Ending Inventory	14		45,650

Table (1)

Therefore, the cost of Ending Inventory in specific identification method is $45,650.

Calculate the cost of goods sold:

Calculation of Cost of Goods Sold
Details	Number of Units	Rate Per Unit ($)	Total Cost ($)
June 1: Beginning balance	11	350	3,850
June 1: Beginning balance	3	350	1,050
June 12: Purchase	9	340	3,060
June 1: Beginning balance	1	350	350
June 24: Purchase	7	330	2,310
Cost of Goods Sold	31		10,620

Table (2)

Therefore, the Cost of Goods Sold in specific identification method is $10,620.

To determine

To Compute: The ending inventory and cost of goods sold using 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.

Calculate the total Cost and units of Goods Available for Sales.

Calculation of Goods Available for Sales
Details	Number of Units	Rate per unit ($)	Total Cost ($)
Beginning balance	16	350	5,600
Add: Purchases
June 12	10	340	3,400
June 24	10	330	3,300
June 29	9	320	2,880
Total Goods available for Sale	45		15,180

Table (3)

Calculate the units of ending inventory.

Calculation of Ending Inventory (Units)
Details	Number of Units	Number of Units
Beginning balance	16
Add: Purchases
June 12	10
June 24	10
June 29	9
Total Goods available for Sale		45
Less: Sales
June 7	11
June 15	12
June 27	8
Total Sales		(31)
Ending Inventory		14

Table (4)

Calculate the cost of ending inventory.

The ending inventory is 14 units.

Calculation of Cost of Ending Inventory
Details	Number of Units	Rate per Unit ($)	Total Cost ($)
June 24	5	330	1,650
June 29	9	320	2,880
Ending Inventory	14		4,530

Table (5)

In FIFO method the ending inventory comprises of the inventory purchased last, because the inventory purchased first were sold first.

Therefore, the cost of Ending Inventory in the FIFO is $4,530.

Cost of Goods Sold.

31 units are sold.

Calculation of Cost of Goods Sold
Details	Number of Units	Rate per Unit ($)	Total Cost ($)
Beginning Inventory	16	350	5,600
June 12	10	340	3,400
June 24	5	330	1,650
Cost of Goods Sold	31		10,650

Table (6)

As it is FIFO method the earlier purchased items will sell first.

Therefore, the Cost of Goods Sold in the FIFO Method is $10,650.

To determine

To Compute: The ending inventory and cost of goods sold using the LIFO method.

Explanation of Solution

Last-in-Last-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.

Ending Inventory:

Calculate the cost of ending inventory.

Calculation of Cost of Ending Inventory
Details	Number of Units	Rate per Unit ($)	Total Cost ($)
Beginning Inventory	14	350	4,900
Ending Inventory	14	350	4,900

Table (7)

• The ending inventory is 14 units (Refer to Table 4).
• In LIFO method, the ending inventory comprises of the inventory purchased first, because the inventory purchased last were sold first.
• Therefore, the ending inventory of 8 units is from the beginning inventory.

Therefore, the cost of Ending Inventory in the LIFO method is $4,900.

Cost of Goods Sold:

Details	Number of Units	Rate per unit ($)	Total Cost ($)
Beginning Inventory	2	350	700
June 12 Purchase	10	340	3,400
June 24 Purchase	10	330	3,300
June 29 Purchase	9	320	2,880
Cost of Goods Sold	31		10,280

Table (8)

• 31 units are sold (Refer to Table 4).
• As it is LIFO method the recent purchased items will sell first.
• Hence, the cost of goods sold will be the recent purchased items.

Therefore, the Cost of Goods Sold in the LIFO Method is $10,280.

To determine

To Compute: The ending inventory and cost of goods sold using 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.

Calculate the Weighted-average cost.

Total cost of goods available for sale = $15,180 (Refer to table - 3)

Total units of goods available for sale = 45 units (Refer to table - 3)

$\begin{array}{c}\begin{array}{l}\text{Weighted-average}\\ \text{Cost}\end{array}\}=\frac{\text{Total Cost of Goods Available For Sale}}{\text{Total number of units Available for Sale}}\\ =\frac{\$15,180}{\text{45 Units}}\\ =\$337.3333\end{array}$ (1)

Calculate the amount of Ending Inventory.

Weighted- average cost per unit = $337.3333 (1)

Number of units in ending inventory = 14 units (Refer to table - 4)

$\begin{array}{c}\text{Cost of Ending inventory}=\left(\begin{array}{l}\left(\begin{array}{l}\text{Number of units in}\\ \text{Ending inventory}\end{array}\right)\\ \times \text{Weighted-average cost per unit}\end{array}\right)\\ =14\text{units }\times \text{ \$337}\text{.3333}\\ =\text{\$4,722}\text{.6}\end{array}$ (2)

Therefore, the cost of Ending Inventory in the Weighted-average-cost Method is $4,722.6.

Calculate the Cost of Goods Sold.

Weighted- average cost per unit= $337.3333 (1)

Units sold = 31 units

$\begin{array}{c}\text{Cost of Goods Sold}=\left(\begin{array}{l}\text{Number of units Sold }\\ \times \text{Weighted-average cost per unit}\end{array}\right)\\ =31\text{ units}\times \text{\$337}\text{.3333}\\ =\text{\$10,457}\text{.33}\end{array}$ (3)

Therefore, the Cost of goods sold in the Weighted-average-cost Method is $10,457.33.