Applying and Analyzing Inventory Costing Methods At the beginning of the current
ID: 2418202 • Letter: A
Question
Applying and Analyzing Inventory Costing Methods
At the beginning of the current period, Chen carried 1,000 units of its product with a unit cost of $15. A summary of purchases during the current period follows. During the period, Chen sold 2,800 units.
Assume that Chen uses the average cost method. Compute both cost of good sold for the current period and the ending inventory balance. (Hint: Round average cost per unit two decimal places prior to calculating the Ending inventory balance. Calculate the Cost of Goods Sold (CGS) as: (CGS = Cost of goods available for sale - Ending inventory balance.)
Cost of goods sold =
Ending Inventory =
Units Unit Cost Cost Beginning Inventory 1,000 $ 15 $ 15,000 Purchase #1 1,800 14 25,200 Purchase #2 800 16 12,800 Purchase #3 1,200 19 22,800Explanation / Answer
We can summarise the data in the following table:
Therefore CGS= $44,216.67
& Ending Inventory: 2000 units
If we are to use perpetual averaging with simple average of prices to reflect inventory cost, the solution is:
Here end inventory is also 2000 units, but at $17.13 per unit, the cost is: $34,250 and CGS is $47,950.
Particulars Units Unit Cost Total Cost Beginning Inventory 1000.00 $ 15.00 $ 15,000.00 Purchase #1 1800.00 $ 14.00 $ 25,200.00 Purchase #2 800.00 $ 16.00 $ 12,800.00 Purchase #3 1200.00 $ 19.00 $ 22,800.00 Total Purchases 4800.00 $ 15.79 $ 75,800.00 Calculation: Total Cost of all purchases + Opening Balance ($75,800)/Total Units (4800) Sales 2800.00 $ 15.79 $ 44,216.67 Calculation: Units Sold(2800)*Average Cost computed above ($15.79) End Balances 2000.00 $ 15.79 $ 31,583.33 Calculation: Units Left (Total-Sales)*Average Cost compouted aboveRelated Questions
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