   Chapter 7, Problem 7.3APR

Chapter
Section
Textbook Problem

Weighted average cost method with perpetual inventoryThe beginning inventory for Midnight Supplies and data on purchases and sales for a three-month period are shown in Problem 7-1A.Instructions 1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual Inventory record similar to the one illustrated in Exhibit 5, using the weighted average cost method. 2. Determine the total sales, the total cost of merchandise sold, and the gross profit from sales for the period. 3. Determine the ending inventory cost as of March 31.

(1)

To determine

Perpetual Inventory System:

Perpetual Inventory System refers to the inventory system that maintains the detailed records of every inventory transactions related to purchases, and sales on a continuous basis. It shows the exact on-hand-inventory at any point of time.

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.

To record: inventory, purchase and cost of merchandise sold data in perpetual inventory record.

Explanation

Figure (1)

Working notes:

Calculate the weighted average unit cost as follows: (Jan 10)

 Weighted average method Quantity Unit cost Total cost of inventory in hand 7,500 units $75$562,500 22,500 units $85$1,912,500 30,000 units $2,475,000 Table (1) Weighted average unit cost = Total cost of inventory in handTotal quantity=$2,475,00030,000=$82.50 (1) Calculate the weighted average unit cost as follows: (Feb 10)  Weighted average method Quantity Unit cost Total cost of inventory in hand 13,500 units$82.50 $1,113,750 54,000 units$87.50 $4,725,000 67,500 units$5,838,750

Table (2)

Weighted average unit cost = Total cost of inventory in handTotal quantity=$5,838,75067,500=$86

(2)

To determine

To calculate: the sales and cost of merchandise sold accounts and gross profit.

(3)

To determine

To calculate: Ending inventory cost for the period.

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