(a) Determine the cost of goods available for sale. Formula Savage Distribution

Question

(a) Determine the cost of goods available for sale.

Formula

Savage Distribution markets CDs of the performing artist Little Sister. At the beginning of October, Savage had in beginning inventory 1,200 Sister's CDs with a unit cost of $5.00 During October Savage made the following purchases of Sister’s CDs. Oct 3 4,000 @ $6.00 Oct 19 2,500 @ $8.00 Oct 9 3,000 @ $7.00 Oct 25 2,000 @ $9.00 During October 9,400 units were sold. Savage uses a periodic inventory system. Instructions:

(a) Determine the cost of goods available for sale.

COST OF GOODS AVAILABLE FOR SALE Date Explanation Units Unit Cost Total Cost Oct 1 Text Quantity Amount Formula Date        Text Quantity Amount Formula Date        Text Quantity Amount Formula Date        Text Quantity Amount Formula Date        Text Quantity Amount Formula Total Formula

Formula

(b) Determine (1) the ending inventory and (2) the cost of goods sold under each of the assumed cost flow methods (FIFO, LIFO, and average cost). Prove the accuracy of the cost of goods sold under the FIFO and LIFO methods. (Note: For average cost, round cost per unit to three decimal places.) (b)(1)   FIFO (b)(2)    FIFO Ending Inventory Cost of Goods Sold Date Units Unit
Cost Total
Cost Title Amount Title Amount Date        Quantity Amount Formula Title Formula Date        Quantity Amount Formula Formula Formula Proof of Cost of Goods Sold Date Units Unit Cost Total Cost Date Quantity Amount Formula Date Quantity Amount Formula Date Quantity Amount Formula Date Quantity Amount Formula Formula Formula (b)(1)     LIFO (b)(2)     LIFO Ending Inventory Cost of Goods Sold Date Units Unit
Cost Total
Cost Cost of goods available for sale Amount Title Amount Oct 1 Quantity Amount Formula Title Formula Date Quantity Amount Formula Formula Formula Proof of Cost of Goods Sold Date Units Unit Cost Total Cost Date Quantity Amount Formula Date Quantity Amount Formula Date Quantity Amount Formula Date Quantity Amount Formula Formula Formula (b)(1)    Average Cost (b)(2)    Average Cost Ending Inventory Cost of Goods Sold Title Amount Title Amount Title Quantity Title Amount Title Formula Title Formula Minor differences may occur between Excel and solutions manual due to significant digits. Title Quantity Title Amount Title Formula (c) Which cost flow method results in (1) the highest inventory amount for the balance sheet and (2) the highest cost of goods sold for the income statement? (c) (1) Enter text answer here. (c) (2) Enter text answer here.

Explanation / Answer

a.

Cost of goods available for sale:

oct 1 1200 * $5 = $6000

3 4000 * $6 = $24000

9 3000 * $7 = $21000

19 2500 * $8 = $20000

25 2000 * $9 = $18000

12700 $89000

Average cost per unit = $89000 / 12700 units

= $7.0078.

a. FIFO:

Cost of goods sold:

1200 * $5 = $6000

4000 * $6 = $24000

3000 * $7 = $21000

1200 * $8 = $9600

9400 $60600

Ending inventory:

1300 * $8 = $10400

2000 * $9 = $18000

3300 $28400

LIFO:

Cost of goods sold:

2000 * $9 = $18000

2500 * $8 = $20000

3000 * $7 = $21000

1900 * $6 = $11400

9400 $70400

Ending inventory :

2100 * $6 = $12600

1200 * $5 = $6000

3300 $18600

Average cost :

Cost of goods sold:

9400 * $7.0078 = $65873.32

Ending inventory:

3300 * $7.0078 = $23125.74.

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