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CP7-1 Analyzing the Effects of Four Alternative Inventory Costing Methods [LO 7-3]
| Scrappers Supplies tracks the number of units purchased and sold throughout each accounting period but applies its inventory costing method at the end of each period, as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the annual accounting period, December 31. |
| Transactions | Units | Unit Cost | |||||||
| Beginning inventory, January 1 | 240 | $ | 21 | ||||||
| Transactions during the year: | |||||||||
| a. | Purchase on account, March 2 | 320 | 23 | ||||||
| b. | Cash sale, April 1 ($37 each) | (390 | ) | ||||||
| c. | Purchase on account, June 30 | 290 | 27 | ||||||
| d. | Cash sale, August 1 ($37 each) | (95 | ) | ||||||
| TIP: Although the purchases and sales are listed in chronological order, Scrappers determines the cost of goods sold after all of the purchases have occurred. |
| Required: | |
| 1. | Compute the cost of goods available for sale, cost of ending inventory, and cost of goods sold at December 31 under each of the following inventory costing methods: (Round “Cost per Unit” to 2 decimal places.)
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Question & Answer: CP7-1 Analyzing the Effects of Four Alternative Inventory Costing Methods [LO 7-3]…..
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a. Last-in, first-out. Weighted average cost. First-in, first-out. Specific identification, assuming that the April 1 sale was selected one-fifth from the beginning inventory and four-fifths from the purchase of March 2. Assume that the sale of August 1 was selected from the purchase of June 30. |
Expert Answer
| Units | Unit cost | Total | |
| Beginning inventory | 240 | 21 | 5040 |
| Purchase, March 2 | 320 | 23 | 7360 |
| Purchase, June 30 | 290 | 27 | 7830 |
| Total | 850 | 20230 | |
| Ending inventory units = 850-390-95= | 365 | ||
| Average cost =20230/850= | 23.8 | ||
| a | |||
| Last-in, first-out: | |||
| Cost of goods available for sale = 20230 | |||
| Ending inventory = (240*21)+(125*23)= | 7915 | ||
| Cost of goods sold = 20230-7915= | 12315 | ||
| b | |||
| Weighted average cost: | |||
| Cost of goods available for sale = 20230 | |||
| Ending inventory = 365*23.8= | 8687 | ||
| Cost of goods sold = 20230-8687= | 11543 | ||
| c | |||
| First-in, first-out: | |||
| Cost of goods available for sale = 20230 | |||
| Ending inventory = (290*27)+(75*23)= | 9555 | ||
| Cost of goods sold = 20230-9555= | 10675 | ||
| d | |||
| Specific identification | |||
| Cost of goods available for sale = 20230 | |||
| Ending inventory =(162*21)+(8*23)+(195*27)= | 8851 | ||
| Cost of goods sold = 20230-8851= | 11379 | ||
