Marlow Company uses a perpetual inventory system. It entered into the following

Question

Marlow Company uses a perpetual inventory system. It entered into the following calendar-year 2011 purchases and sales transactions Date Activities Units Acquired at Cost Units Sold at Retail 200 units @ $40/unit 400 units@$75/unit units @ $48/unit yo-YYB + ( a6- 10 Sales 200 units@$7S/unit 600 units Required 1. Compute cost of goods available for sale and the number of units available for sale. 2. Compute the number of units in ending inventory. 3. Compute the cost assigned to ending inventory using ( FIFO b) LIFO, () specific identification- 5344 units sold consist of 500 units from beginning inventory and 100 unity form the March 13 purchase, and(d) yeighted average cost. (Round per unit costs to three dectmals, but inventory balances to the 4.) Compute gross profit earned by the company for each of the four costing methods in part 3 Analysis Component 5. If the company's manager earns a bonus based on a percent of gross profit, which method of inventory costing will the manager likely prefer?

Explanation / Answer

Solution 1:

Solution 2:

Number of units in ending inventory = Total units available for sale - Unit sold = 1340 - 600 = 740 units

Solution 3a:

Solution 3b:

Solution 3c:

Unit sold under specific identification consist of 500 units from beginning inventory and 100 units from Mar 13 purchase.

Therefore Cost of goods sold = (500*$44) + (100*$20) = $24,000

Ending inventory = $59,440 - $24,000 = $35,440

Solution 3d:

Solution 4:

Solution 5:

If company manager earns a bonus based on a percent of gross profit then manager will like LIFO and specific identification method as gross profit under both method is highest.

Computation of cost of goods and units available for sale Date of Opening Qty / Purchase Quantity Unit Cost Cost of goods 1-Jan 600 $44.00 $26,400.00 10-Feb 200 $40.00 $8,000.00 13-Mar 100 $20.00 $2,000.00 21-Aug 160 $60.00 $9,600.00 5-Sep 280 $48.00 $13,440.00 Total 1340 $59,440.00

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