III. (32 points) The Stay-Warm Company is a local merchandise company that sells
ID: 2581849 • Letter: I
Question
III. (32 points) The Stay-Warm Company is a local merchandise company that sells hat-glove- scarf sets for kids. In the month of October 2012, the company had the following information about its inventory purchases and sales. (For your calculations, keep two decimal places.) Date Explanation October 1Beginning Inventory October 5 Purchase October 8 Purchase October 16 Purchase October 26 Sales # Units 200 1.000 2,000 800 3,000 Unit Cost/Price $6 $5 $4 S9 S15 Required 1: (22 points) Determine the company's cost of goods sold for October 2012 and its ending inventory on 10/31/2012 under each of the inventory flow assumptions (including FIFO, LIFO, and weighted average cost). Show your calculations. Cost of Goods Sold (S) for October 2012 Ending Inventory (S) on 10/31/2012 (I) FIFO method (2) LIFO method (3) Weighted Average CostExplanation / Answer
1. FIFO method:
Cost of goods sold= 9400, ending inventory= 12000
under FIFO, sales are first considered from opening inventory and from earlier purchases first, accordingly sale fo 2000 units first taken 200 from opening inventory, 1000 from Oct 5 purchases and balance 800 from Oct8 purchases.
2. LIFO
Cost of goods sold= 12000, ending inventory= 9400
In LIFO inventory sold is considered first from latest inventory purchases, accordingsly sale of 2000 units first considered from OCT 16 purchases, and balance from Oct 8 purchases
3. Weighted average:
Cost of goods sold= ending inventory= 10700
under weighted average method, cost is accummulated and average is calculated after each purchase.
for example after Oct 5 purchase closing units will be= 200+1000= 1200 and total cost of 1200 units= 1200+5000= 6200. then average cost will become= 6200/1200= 5.17 per unit. then after each successive unit similarly average cost will be calculated. at the time of sale to arrive at cost of goods sold number of units sold will be multiplied by average cost.
FIFO Method Perpetual Inventory method Cost of goods sold Purchases Sales- Oct 26 Closing Lot Units Per unit Total Units Per unit Total Units Per unit Total Opening 200 6 1200 200 6 1200 0 6 0 Oct 5 1000 5 5000 1000 5 5000 0 5 0 Oct 8 2000 4 8000 800 4 3200 1200 4 4800 Oct 16 800 9 7200 800 9 7200 21400 2000 9400 12000