Use the following to answer questions 7-17 During September, SAM Company sells 2

Question

Use the following to answer questions 7-17 During September, SAM Company sells 2,750 mountain bikes for $950 each. The company has the following inventory purchase transactions for January: # of Units Date 1-Sep 7-Sep 19-Sep Transaction Beginning Inventory Purchase Purchase 300 1,200 1,500 Unit cost $629 635 Total Cost $188,700 762,000 966,000 $1,916,700 5:300644 3,000 7. $ For questions 8-10 assume the company uses First-in, First-out (FIFO) inventory valuation. What were company's sales revenue for the period? Calculate ending inventory (FIFO)

Explanation / Answer

7. Sales Revenue: 2750*950= $2612500

8.Ending inventory using FIFO is : 3000-2750 = 250 units @644= 161000

9.Cost of goods sold (FIFO) is

300*629= 188700

1200*635= 762000

(2750-300-1200)*644=1250*644=805000

Cost of the ggods sold = 188700+762000+805000=1755700

10. Gross Profit (FIFO) = Sales - cost of the goods sold= 2612500-1755700=856800

11. Ending inventory (LIFO) is (3000-2750) *629=157250

12.Cost of the goods sold (LIFO) is

1500*644=966000

1200*635=762000

50*629=31450

966000+762000+31450=1759450

13.Gross Profit (LIFO) = Sales - cost of the goods sold = 2602500-1759450=843050

14.Ending inventory (WA)=

Unit cost Units purchased Total

$629 300 188700

635 1200 762000

644 1500 966000

Total 3000 1916700

Weighted average cost per unit = $1916700/3000 = 638.9

Ending inventory is 638.9*1500=958350

15. Cost of the goods sold (WA) = goods sold * weighted average cost per unit = 2750*638.9 = 1756975

16. Gross Profit (WA) = Sales - cost of the goods sold = 2612500-1756975= 855525

17.Gross profit under FIFO method is highest ($856800). So, FIFO method will show larger net income.

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