FUND.ACCT.PRIN -ONLINE ONLY  >I<
FUND.ACCT.PRIN -ONLINE ONLY >I<
22nd Edition
ISBN: 9780077632878
Author: Wild
Publisher: MCG
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Chapter 6, Problem 3APSA
To determine

Requirement1:

Concept Introduction:

Goods available for sale:

The Goods available for sale means that the total goods in hand which can be offered to the customers for sale. This can be expressed in terms of dollars and units. The Total Goods in hand can be computed as a sum of inventory in hand in the beginning of the period and Inventories purchased during the period.

To Determine: TheCost and number of units available for sale.

Expert Solution
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Explanation of Solution

TheCost of goods available for sale is computed by adding up the cost of goods in hand in the beginning of the period and cost of inventory purchased during the period. And the number of units available f or sale is computed as on the same lines but in units terms.

Cost and Units available for sale      
  UNITS COST PU AMOUNT
Beginning Inventory Jan-1 600 45 27000
Purchases:      
Feb-10 Purchases 400 42 16800
Mar-13 Purchases 200 27 5400
Aug-21 Purchases 100 50 5000
Sept-5 Purchases 500 46 23000
Goods available for sale 1800   77200
To determine

Requirement2:

Ending Inventory:

Ending Inventory units means the number of units left over from the total goods available for sale after units sold deducted from it.

To determine: The Number of Ending Inventory Units.

Expert Solution
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Explanation of Solution

The ending Inventory units is a difference between units of goods available for sale and units sold and has been computed as under:

Ending Inventory Units  
  UNITS
Units Available for sale 1800
Purchase  
15-Mar 800
10-Sep 600
Ending Inventory Units 400
To determine

Requirement3-a:

First in First Out: The first in first out method of assigning the cost to goods sold is based on the principle that the goods that are entered first in the store room shall be issued first for sale and hence the cost shall be recorded at its initial prices of goods entered in store room. The perpetual Inventory system means the records are maintained on a continuous basis.

To determine: The Cost assigned to ending Inventory under FIFO.

Expert Solution
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Explanation of Solution

The FIFO method of perpetual inventory suggests that the goods issued for sale on a particular date shall be assigned cost on the basis of cost of oldest material lies in the store on that particular date.

The Ending Inventory shall be computed as under:

STATEMENT SHOWING INVENTORY RECORD UNDER PERPETUAL FIFO METHOD
  RECIEPTS COST OF GOODS SOLD BALANCE
DATE UNITS RATE AMOUNT $ UNITS RATE AMOUNT $ UNITS RATE AMOUNT $
1-Jan             600 45 27000
10-Feb 400 42 16800       600 45 27000
              400 42 16800
13-Mar 200 27 5400       600 45 27000
              400 42 16800
              200 27 5400
15-Mar       600 45 27000 200 42 8400
        200 42 8400 200 27 5400
21-Aug 100 50 5000       200 42 8400
              200 27 5400
              100 50 5000
5-Sep 500 46 23000       200 42 8400
              200 27 5400
              100 50 5000
              500 46 23000
10-Sep       200 42 8400      
        200 27 5400      
        100 50 5000      
        100 46 4600 400 46 18400
TOTAL 1200   50200 1400   58800 400   18400

Therefore, Ending Inventory is 400 units of $18400.

To determine

Requirement3-b:

Last in First Out: The Last in first out method of assigning the cost to goods sold is based on the principle that the goods that are entered recently in the store room shall be issued first for sale and hence the cost shall be recorded at its recent prices of goods entered in store room. The perpetual Inventory system means the records are maintained on a continuous basis.

To determine: The Cost assigned to ending Inventory under LIFO.

Expert Solution
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Explanation of Solution

The LIFO method of perpetual inventory suggests that the goods issued for sale on a particular date shall be assigned cost on the basis of cost of newest material lies in the store on that particular date.

The Ending Inventory shall be computed as under:

STATEMENT SHOWING INVENTORY RECORD UNDER PERPETUAL LIFO METHOD
  RECIEPTS COST OF GOODS SOLD BALANCE
DATE UNITS RATE AMOUNT $ UNITS RATE AMOUNT $ UNITS RATE AMOUNT $
1-Jan             600 45 27000
10-Feb 400 42 16800       600 45 27000
              400 42 16800
13-Mar 200 27 5400       600 45 27000
              400 42 16800
              200 27 5400
15-Mar       200 27 5400      
        400 42 8400      
        200 45 9000 400 45 18000
21-Aug 100 50 5000       400 45 18000
              100 50 5000
5-Sep 500 46 23000       400 45 18000
              100 50 5000
              500 46 23000
10-Sep       500 46 23000      
        100 50 5000 400 45 18000
TOTAL 1200   50200 1400   59200 400   18000

Therefore, Ending Inventory is 400 units of $ 18000.

To determine

Requirement3-c:

Weighted Average: The Weighted Average method of issuing inventory is based on principle that the goods shall be issued at a average of prices of goods which are lying in the store room at the time of issuing for sale. The perpetual Inventory system means the records are maintained on a continuous basis.

To determine: The Cost assigned to ending Inventory under Weighted average.

Expert Solution
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Explanation of Solution

The Weighted Average method of perpetual inventory suggests that the goods issued for sale on a particular date shall be assigned cost on the basis of average cost of material lies in the store on that particular date.

The Ending Inventory shall be computed as under:

STATEMENT SHOWING INVENTORY RECORD UNDER PERPETUAL WEIGHTED AVERAGE METHOD
  RECIEPTS COST OF GOODS SOLD BALANCE
DATE UNITS RATE AMOUNT $ UNITS RATE AMOUNT $ UNITS RATE AMOUNT $
1-Jan             600 45 27000
10-Feb 400 42 16800       600 45 27000
              400 42 16800
13-Mar 200 27 5400       600 45 27000
              400 42 16800
              200 27 5400
Average             1200 41 49200
15-Mar       800 41 32800 400 41 16400
21-Aug 100 50 5000       400 41 16400
              100 50 5000
5-Sep 500 46 23000       400 41 16400
              100 50 5000
              500 46 23000
Average             1000 44.4 44400
10-Sep       600 44.4 26640 400 44.4 17760
TOTAL 1200   50200 1400   59440 500   17760

Therefore, Ending Inventory is 400 units of $17760.

To determine

Requirement3-d:

Specific Identification: Specific Identification method of assigning the cost to goods sold is based on the principle that the goods that have been issued for sale has been specifically identified to be issued from the particular lot of material. Therefore, the cost of that particular lot shall be assigned on the same. The perpetual Inventory system means the records are maintained on a continuous basis.

To determine: The Cost assigned to ending Inventory under Specific Identification.

Expert Solution
Check Mark

Explanation of Solution

The Specific Identification method of perpetual inventory suggests that the goods issued for sale on a particular date shall be assigned cost on the basis of cost of material specifically identified as issued from the store on that particular date.

The Ending Inventory shall be computed as under:

STATEMENT SHOWING INVENTORY RECORD UNDER PERIODIC SPECIFIC IDENTIFICATION METHOD
  RECIEPTS COST OF GOODS SOLD BALANCE
DATE UNITS RATE AMOUNT $ UNITS RATE AMOUNT $ UNITS RATE AMOUNT $
Balance Oct1 600 45 27000 600 45 27000      
Purchase                  
10-Feb 400 42 16800 300 42 12600 100 42 4200
13-Mar 200 27 5400 200 27 5400      
21-Aug 100 50 5000 50 50 2500 50 50 2500
5-Sep 500 46 23000 250 46 11500 250 46 11500
TOTAL 1800   77200 1400   59000 400   18200

Therefore, Ending Inventory is 400 units of $18200.

To determine

Requirement4:

Gross Profits: Gross Profits means excess of sales revenue over the cost of goods sold.

To determine:Gross profits earned by the company under various methods.

Expert Solution
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Explanation of Solution

The Gross profits is computed as a difference between the sales revenue and cost of goods sold as assigned under various methods and has been computed as under:

Statement showing Gross Profits earned:        
  FIFO LIFO Weighted Specific
      Average Identification
Sales revenue:        
15-Mar 800 units @75 60000 60000 60000 60000
10-Sep 600 units @75 45000 45000 45000 45000
Total sales revenue 105000 105000 105000 105000
Less: Cost of goods sold (as computed Above) 58800 59200 59440 59000
Gross Margin 46200 45800 45560 46000
To determine

Requirement5:

To determine: The Method to be preferred so as to generate higher bonus.

Expert Solution
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Explanation of Solution

As the bonus is based on gross profit, the method shall be preferred which will give provide lowest cost of goods sold. Therefore, as per above computations, the FIFO method shall be followed as its gives the lowest cost of goods sold and resultant higher gross profit.

The FIFO method of Inventory valuation shall be preferred.

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Chapter 6 Solutions

FUND.ACCT.PRIN -ONLINE ONLY >I<

Ch. 6 - Prob. 11DQCh. 6 - Prob. 12DQCh. 6 - Prob. 13DQCh. 6 - Prob. 14DQCh. 6 - Prob. 15DQCh. 6 - Prob. 16DQCh. 6 - Prob. 17DQCh. 6 - Prob. 1QSCh. 6 - Prob. 2QSCh. 6 - Prob. 3QSCh. 6 - Prob. 4QSCh. 6 - Prob. 5QSCh. 6 - QS 64 Perpetual Inventory costing with weighted...Ch. 6 - Periodic: Inventory costing with FIFO P3 Refer to...Ch. 6 - Prob. 8AQSCh. 6 - Prob. 9AQSCh. 6 - Prob. 10QSCh. 6 - Prob. 11QSCh. 6 - Prob. 12QSCh. 6 - Prob. 13QSCh. 6 - Prob. 14AQSCh. 6 - Prob. 15AQSCh. 6 - Prob. 16AQSCh. 6 - Prob. 17AQSCh. 6 - Prob. 18QSCh. 6 - Prob. 19QSCh. 6 - Inventory errors A2 In taking a physical inventory...Ch. 6 - Prob. 21QSCh. 6 - Prob. 22BQSCh. 6 - International accounting standards C2 P2 Answer...Ch. 6 - Exercise 6.1 Inventory ownership I. At rear-end,...Ch. 6 - Exercise 6-2 Inventory costs C2 Walberg...Ch. 6 - Prob. 3ECh. 6 - Prob. 4ECh. 6 - Prob. 5AECh. 6 - Exercise 6-6A Periodic: Income effects of...Ch. 6 - Prob. 7ECh. 6 - Prob. 8ECh. 6 - Prob. 9AECh. 6 - Prob. 10ECh. 6 - Prob. 11ECh. 6 - Prob. 12ECh. 6 - Prob. 13ECh. 6 - Prob. 14AECh. 6 - Prob. 15ECh. 6 - Prob. 16BECh. 6 - Prob. 17BECh. 6 - Prob. 18ECh. 6 - Prob. 1APSACh. 6 - Prob. 2AAPSACh. 6 - Prob. 3APSACh. 6 - Prob. 4AAPSACh. 6 - Prob. 5APSACh. 6 - Prob. 6APSACh. 6 - Prob. 7AAPSACh. 6 - Prob. 8AAPSACh. 6 - Prob. 9ABPSACh. 6 - Prob. 10BAPSACh. 6 - Prob. 1BPSBCh. 6 - Problem 6-2BA Periodic: Alternative cost...Ch. 6 - Prob. 3BPSBCh. 6 - Prob. 4BAPSBCh. 6 - Prob. 5BPSBCh. 6 - Prob. 6BPSBCh. 6 - Problem 6-7BA Periodic: Alternative cost flows P3...Ch. 6 - Problem 6-8BA Periodic: Income comparisons and...Ch. 6 - Prob. 9BBPSBCh. 6 - Prob. 10BBPSBCh. 6 - Prob. 6SPCh. 6 - Prob. 1BTNCh. 6 - Prob. 2BTNCh. 6 - Prob. 3BTNCh. 6 - Prob. 4BTNCh. 6 - Prob. 5BTNCh. 6 - Prob. 6BTNCh. 6 - Prob. 7BTNCh. 6 - Prob. 8BTNCh. 6 - Prob. 9BTN
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