Perpetual Inventory System and Inventory Costing Methods The inventory of Wood4F

Question

Perpetual Inventory System and Inventory Costing Methods

The inventory of Wood4Fun and data on purchases and sales for a two-month period follow. The company closes its books at the end of each month. It uses the perpetual inventory system.

In preparing the solutions, it is helpful to determine the balance of inventory after each transaction, as shown in the Business Insight: Concepts and Applications feature in this chapter.

Determine the cost of ending inventory and cost of goods sold for April and May using the average-cost method. Round unit costs to two decimal places and round the final answers to the nearest dollar. Enter all amounts as positive numbers.

1. Cost Of Ending Inventory for May? Cost of Goods Sold in May?

2. Determine Cost of Ending Inventory for April and May using the FIFO Method

3. Determine Cost of Ending Inventory for April and May using the LIFO Method

Apr. 1 Beginning inventory   50 units @ $204 10 Purchase 100 units @ $220 17 Sale   90 units 30 Ending inventory   60 units May 2 Purchase 100 units @ $216 14 Purchase   50 units @ $224 22 Purchase   60 units @ $234 30 Sale 200 units 31 Ending inventory   70 units

Explanation / Answer

(1). cost of ending inventory and cost of goods sold for April and May using the average-cost method :

April Month cost of ending inventory and cost of goods sold:-

     weighted averagecost = (opening inventory cost + purchase cost) /(opening units + purchase units)

   = (50*204) + (100 * 220) / (50+100)

   = 10200 + 22000 / 150

   = $214.67 per unit

   cost of ending inventory in April = 60units * $214.67 = $12880

   cost of goods sold in April =90units * $214.67 = $19320

May Month  cost of ending inventory and cost of goods sold:

weighted average cost = (opening inventory cost + purchase cost) /(opening units + purchase units)

=(60units * $214.67) + (100*216) + (50*224) + (60 * 234) / (60+100+50+60)

   = 12880 + 21600 + 11200 + 14040 / 270units

   = 59720/270units

   =$221.19

   cost of ending inventory in May = 70units * $221.19 = $15483

cost of goods sold in May =200units * $221.19 = $44238

(2).   Determine Cost of Ending Inventory for April and May using the FIFO Method :

April month :

Cost of ending inventory in April = (opening inventory + purchase cost)- cost of goods sold

=( $10200 + $22000) - $19000

= $13200

Note:- Cost of Goods Sold for April Month:

90unit sold

50 units from opening inventory $204 * 50 =$10200

40units from 10 April $220 * 40 = $ 8800

$19000

       

   May Month :

Cost of ending inventory in May = (opening inventory + purchase cost)- cost of goods sold

=(13200 + 21600+11200+14040) - $43760

= $60040 - $43760

=$16280

Note:-   cost of goods sold for may Month

   200 units sold

     60units from opening inventory $220 * 60 =$13200

   100 units from 2nd May $216 * 100 =$21600

   40 units from 14th May $224 * 40 = $8960

$43760

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