Question & Answer: CP7-1 Analyzing the Effects of Four Alternative Inventory Costing Methods [LO 7-3]…..

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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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

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