Burke Ltd. began operations in February 2008 with 4,500 units of inventory that

Question

Burke Ltd. began operations in February 2008 with 4,500 units of inventory that it purchased at a cost of $12.00 each. The company’s purchases during February were as follows:

Feb 6       3,500 units   @   $12.00

Feb 14       2,000 units   @    $11.80

Feb 23       8,200 units   @   $11.65

Feb 28       3,600 units   @   $11.40

Sales during February:

Feb 4       1,500 units

Feb 15       5,800 units

Feb 24       7,200 units

Burke uses a periodic inventory system.

Required:

a. Calculate the cost of goods sold for February using the weighted average cost flow assumption.

b. Calculate the cost of goods sold for February using the first-in, first-out cost flow assumption.

c. Which inventory cost flow assumption results in the greater net income for February? Which results in the smaller?

d. Which inventory cost flow assumption results in the larger inventory balance at the end of February? Which results in the smaller?

Explanation / Answer

Weighted average cost per unit units per unit total beginning invnetory 4500 12 54000 6-Feb 3500 12 42000 14-Feb 2000 11.8 23600 23-Feb 8,200 11.65 95530 28-Feb 3,600 11.4 41040 total 21800 256170 weighted average cost =256170/21800 11.75092 total sale units = 1500+5800+7200 14500 a) cost of goods sold 14500*11.75092 170388 answer b) cost of goods sold(FIFO) units per unit total beginning invnetory 4500 12 54000 6-Feb 3500 12 42000 14-Feb 2000 11.8 23600 23-Feb 4,500 11.65 52425 total 14500 172025 cost of goods sold $172,025 c) Weighted average cost result in higher net income and FIFO result in smaller income d) weighted average result in larger inventory balance.FIFO results in smaller inventory balance

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