ID: A 9. During the first quarter of 20x7, Blake Company sold 12,000 cases of Pr
ID: 2576783 • Letter: I
Question
ID: A 9. During the first quarter of 20x7, Blake Company sold 12,000 cases of Product T for $120,000. Facts related to its beginning inventory and purchases are as follows: Jan. Feb. 13 Purchases 5,000 cases @ S4.00 3,000 cases $5.00 8,000 cases @ $4.50 2,000 cases@ $5.00 1 10 Purchases Beginning inventory Assume the perpetual inventory system is used under three For the quarter ended March 31, 20x7, compute the ending inventory and cost of goods sold methods: (a) average-cost, (b) FIFO, and (e) LIFO. (Show your work on the forms provided.)Explanation / Answer
Solution:
Perpetual Inventory Method
Under perpetual system, inventory is updated after each transaction whether sale or purchase of units.
Note – Since the transaction date of sale is not given in the question it is assumed that this transaction or sale are placed at the end of the quarter..
Part a ---- Ending Inventory and Cost of Goods Sold by Average Cost method
Average Cost Method
Under average cost method, the average cost per unit is calculated and the calculated average cost is applied to the units sold in order to find out cost of goods sold.
Average Unit Cost = Total Cost of material available for sale / total quantity of material available for sale
Cost of Goods Sold = Sold Units x Average Unit Cost
Since company is using perpetual system, the average cost is calculated each time after the incurring of transaction whether purchase or sale.
Cost of Goods Available for Sale = $81,000 (from part b)
Total Units Available for Sale = 18,000 Units
Average Cost Per Unit = $81,000 / 18,000 = $4.50 Per Units
Total Units Sold = 12,000 Cases
Cost of Goods Sold = Units sold x Average Cost per unit = 12,000 x 4.50 = $54,000
Ending Inventory = Cost of Goods Available for sale $81,000 – Cost of goods sold 54,000 = $27,000
Part b --- FIFO method
FIFO method says the oldest units are sold first.
FIFO
Units
$/Unit
$$
Beginning Inventory Jan 1
5000
$4.00
$20,000
Purchases
Jan.10
3000
$5.00
$15,000
Feb.13
8000
$4.50
$36,000
March 5.
2000
$5.00
$10,000
Goods Available for Sale (A)
18000
$81,000
Cost of Goods Sold:
Units Sold from Beginning Inventory
5000
$4.00
$20,000
Units Sold from Purchases Jan.10
3000
$5.00
$15,000
Units Sold from Purchases Feb.13
4000
$4.50
$18,000
Units Sold from Purchases March 5
Total Cost of Goods Sold (B)
12000
$53,000
Ending Inventory (A - B)
6000
$28,000
Cost of Goods Sold (FIFO) = $53,000
Ending Inventory (FIFO) = $28,000
Part c – LIFO Method
LIFO method says the newest or recent purchased units are issued or sold first.
LIFO
Units
$/Unit
$$
Beginning Inventory Jan 1
5000
$4.00
$20,000
Purchases
Jan.10
3000
$5.00
$15,000
Feb.13
8000
$4.50
$36,000
March 5.
2000
$5.00
$10,000
Goods Available for Sale (A)
18000
$81,000
Cost of Goods Sold:
Units Sold from Beginning Inventory
Units Sold from Purchases Jan.10
2000
$5.00
$10,000
Units Sold from Purchases Feb.13
8000
$4.50
$36,000
Units Sold from Purchases March 5
2000
$5.00
$10,000
Total Cost of Goods Sold (B)
12000
$56,000
Ending Inventory (A - B)
6000
$25,000
Cost of Goods Sold (LIFO) = $56,000
Ending Inventory (LIFO) = $25,000
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
FIFO
Units
$/Unit
$$
Beginning Inventory Jan 1
5000
$4.00
$20,000
Purchases
Jan.10
3000
$5.00
$15,000
Feb.13
8000
$4.50
$36,000
March 5.
2000
$5.00
$10,000
Goods Available for Sale (A)
18000
$81,000
Cost of Goods Sold:
Units Sold from Beginning Inventory
5000
$4.00
$20,000
Units Sold from Purchases Jan.10
3000
$5.00
$15,000
Units Sold from Purchases Feb.13
4000
$4.50
$18,000
Units Sold from Purchases March 5
Total Cost of Goods Sold (B)
12000
$53,000
Ending Inventory (A - B)
6000
$28,000