ABC Company sells two types of air conditioner systems – one for commercial use
ID: 2550049 • Letter: A
Question
ABC Company sells two types of air conditioner systems – one for commercial use and one for residential use. The following inventory data was collected by the staff in the office of the controller for the first month of the company’s fiscal year.
Commercial Air Conditioner Systems:
Qty
Unit Cost
Total Cost
Unit Selling Price
Total Selling Price
12/31/2017
Balance
600
800
480,000
1/3/2018
Purchase
600
900
540,000
1/12/2018
Purchase
300
950
285,000
1/18/2018
Sale
(900)
1,080
972,000
1/21/2018
Purchase
500
1,000
500,000
1/29/2018
Sale
(600)
1,140
684,000
1/31/2018
500
1,805,000
1,656,000
Residential Air Conditioner Systems:
Qty
Unit Cost
Total Cost
Unit Selling Price
Total Selling Price
12/31/2017
Balance
200
400
80,000
1/10/2018
Purchase
500
450
225,000
1/15/2018
Sale
(500)
540
270,000
1/20/2018
Purchase
400
475
190,000
1/25/2018
Sale
(400)
570
228,000
1/30/2018
Purchase
300
500
150,000
500
645,000
498,000
The controller expects that the market for the commercial air conditioner systems market will decline in upcoming months, putting a downward pressure on future sales and the unit selling price as well.
The controller’s staff developed the following estimates:
Commercial Air Conditioner Systems, Net Realizable Value (per unit) $900
Residential Air Conditioner Systems, Net Realizable Value (per unit) $580
The normal profit margin is 16.67% of cost.
The company accounts for inventory using the FIFO cost allocation method and the perpetual system.
Commercial Air Conditioner Systems:
Based on the beginning balance, purchases and sales:
Calculate the ending inventory value at 1/30/18:
Calculate the COGS for the month ended 1/30/18:
Note: BI + P – COGS = EI is the algebraic framework that can be used to calculate COGS.
Residential Air Conditioner Systems:
Based on the beginning balance, purchases and sales:
Calculate the ending inventory value at 1/30/18:
Calculate the COGS for the month ended 1/30/18:
Note: BI + P – COGS = EI is the algebraic framework that can be used to calculate COGS.
Determine the dollar amount that management should report on the 1/31/18 balance sheet, after the lower of cost or net realizable value has been applied at the individual product level:
Determine the dollar amount that management should report on the 1/31/18 balance sheet, after the lower of cost or net realizable value has been applied at the major categories level, that is, commercial and residential air conditioning systems are aggregated into a single group:
Using the attached T-account template, prepare the entry or entries required to recognize a write-down of inventory.
Commercial Air Conditioner Systems:
Qty
Unit Cost
Total Cost
Unit Selling Price
Total Selling Price
12/31/2017
Balance
600
800
480,000
1/3/2018
Purchase
600
900
540,000
1/12/2018
Purchase
300
950
285,000
1/18/2018
Sale
(900)
1,080
972,000
1/21/2018
Purchase
500
1,000
500,000
1/29/2018
Sale
(600)
1,140
684,000
1/31/2018
500
1,805,000
1,656,000
Residential Air Conditioner Systems:
Qty
Unit Cost
Total Cost
Unit Selling Price
Total Selling Price
12/31/2017
Balance
200
400
80,000
1/10/2018
Purchase
500
450
225,000
1/15/2018
Sale
(500)
540
270,000
1/20/2018
Purchase
400
475
190,000
1/25/2018
Sale
(400)
570
228,000
1/30/2018
Purchase
300
500
150,000
500
645,000
498,000
Explanation / Answer
Commecrial Airconditioners
Working:
Residential Air Conditioners
Working:
LCNRV:
Working:
Air Conditioners as a group:
Units Value Ending Inventory 500 500000 Cost of goods sold 1500 1305000Related Questions
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