You are provided with the following information for Pavey Inc. for the month end
ID: 2385215 • Letter: Y
Question
You are provided with the following information for Pavey Inc. for the month ended October 31, 2011. Pavey uses a periodic method for inventory.Date
Description
Units
Unit Cost or
Selling Price
October 1 Beginning inventory 60 $25
October 9 Purchase 120 26
October 11 Sale 100 35
October 17 Purchase 70 27
October 22 Sale 60 40
October 25 Purchase 80 28
October 29 Sale 110 40
(a) Calculate (i) ending inventory, (ii) cost of goods sold, (iii) gross profit, and (iv) gross profit rate under each of the following methods
Explanation / Answer
LIFO Date/ Total Stock Held/ Cost of unit of goods 1 Oct/ 60/ 60 units-$25 9 Oct/ 180/ 60 units-$25; 120 units-$26 11 Oct/ 80/ 60 units-$25; 20 units-$26 17 Oct/ 150/ 60 units-$25; 20 units-$26; 70 units-$27 22 Oct/ 90/ 60 units-$25; 20 units-$26; 10 units-$27 25 Oct/ 170/ 60 units-$25; 20 units-$26; 10 units-$27; 80 units-$28 29 Oct/ 60/ 60 units-$25 Note that while in this case, the 60 units is the initial 60 held as opening stock, it is possible for this to have been sold earlier. So no short-cuts here! The step-by-step method will need to be used. For FIFO and weighted-average, the units held will be the same, except: 1) FIFO: because the first unit would have been sold, the 60 units held will be valued as the last 60 units, which is a part of the 80 units purchase on 25 Oct, which is $28. (anyway, the full-step will be needed for average cost). 2) Average-cost: do the full FIFO-step, except that the cost per unit is now the average, rather than having to split them according to the timing of their purchase. From there, the ending inventory and cost of goods sold can be calculated. For Gross Profit for each case, follow the formula: Gross Profit =Sales-[Opening Stock+Purchases-Closing Stock] And for the rate, divide it by the unit sold.
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