The inventory transactions for August of the current year were as follows:
Units Unit cost Total cost
Aug. 1 Beginning 20,000 4.00 80,000
7 Purchase 10,000 4.20 42,000
10 Purchase 20,000 4.30 86,000
12 Sale 15,000 ? ?
16 Purchase 20,000 4.60 92,000
20 Sale 40,000 ? ?
28 Sale return 3,000 ? ?
The sale return relates to the August 20 sale.
Required: Compute for the ending inventory and cost of goods sold using:
a. FIFO cost flow
b. Weighted average – Periodic
c. Moving Average
INVENTORY COST FLOW
a. FIFO cost flow
Purchases Sales Balance
Aug Units Unit Total Units Unit Total Units Unit Total
cost cost cost cost cost cost
1 20,000 4.00 80,000
7 10,000 4.20 42,000 20,000 4.00 80,000
10,000 4.20 42,000
10 20,000 4.30 86,000 20,000 4.00 80,000
10,000 4.20 42,000
20,000 4.30 86,000
12 15,000 4.00 60,000 5,000 4.00 20,000
10,000 4.20 42,000
20,000 4.30 86,000
16 20,000 4.60 92,000 5,000 4.00 20,000
10,000 4.20 42,000
20,000 4.30 86,000
20,000 4.60 92,000
20 5,000 4.00 20,000
10,000 4.20 42,000
20,000 4.30 86,000
5,000 4.60 23,000 15,000 4.60 69,000
28 (3,000) 4.60 (13,800) 18,000 4.60 82,800
Cost of goods sold
Inventory, Aug 1 80,000
Purchases 220,000
Goods available for sale 300,000
Inventory, end (82,800)
Cost of goods sold 217,200
b. Weighted average - periodic
Units Unit cost Total cost
Aug. 1 Beginning Balance 20,000 4.00 80,000
Aug. 7 Purchase 10,000 4.20 42,000
Aug. 10 Purchase 20,000 4.30 86,000
Aug. 16 Purchase 20,000 4.60 92,000
70,000 300,000
Weighted average unit cost (300,000/70,000) 4.29
Inventory cost 77,220
Cost of goods sold
Inventory, Aug 1 80,000
Purchases 220,000
Goods available for sale 300,000
Inventory, end (77,220)
Cost of goods sold 222,780
c. Moving average – perpetual
Aug UNITS UNIT COST TOTAL COST
1 Beginning Balance 20,000 4.00 80,000
7 Purchase 10,000 4.20 42,000
Balance 30,000 4.07 122,000
10 Purchase 20,000 4.30 86,000
Balance 50,000 4.16 208,000
12 Sale (15,000) 4.16 (62,400)
Balance 35,000 4.16 145,600
16 Purchase 20,000 4.60 92,000
Balance 55,000 4.32 237,600
20 Sale (40,000) 4.32 (172,800)
Balance 15,000 4.32 64,800
28 Sales Return 3,000 4.32 12,960
Balance 18,000 4.32 77,960
Aug 12 Sale 62,400
Aug 20 Sale 172,800
Cost of goods sold 235,200
Diane Company showed the following information on December 31,2014:
Cost Retail
Inventory, January 1 560,000 1,400,000
Sales 10,000,000
Purchases 4,960,000 10,320,000
Freight in 150,000
Markup 1,000,000
Markup cancelation 120,000
Markdown 500,000
Markdown cancelation 100,000
Estimated normal shrinkage is 2.5% of sales.
Required: Compute for the ending inventory using:
a. Conservative retail method
b. Average retail method
c. FIFO retail method
INVENTORY ESTIMATION
a. Conservative retail method
b. Average retail method
Cost Retail
Beginning Inventory 560,000 1,400,000
Purchases 4,960,000 10,320,000
Freight in 150,000
Mark-up 1,000,000
Mark-up cancelation (120,000)
GAS - Conservation 5,670,000 12,600,000
Cost Ratio (45%)
Mark down (500,000)
Mark down cancelation 100,000
GAS - Average 5,670,000 12,200,000
Cost Ratio (46.48%)
Less: Sales 10,000,000
Estimated normal shrinkage 250,000 10,250,000
1,950,000
Conservative cost (1,950,000x45%) 877,500
Average cost (1,950,000x46.48%) 906,360
Conservative Average
Cost of goods available for sale 5,670,000 5,670,000
Inventory, end (877,500) (906,360)
Cost of goods sold 4,792,500 4,763,640
c. FIFO retail method
Cost Retail
Beginning Inventory 560,000 1,400,000
Purchases 5,110,000 10,320,000
Net mark up 880,000
Net mark down (400,000)
Net purchases 5,110,000 10,800,000
Current year cost ratio
(5,110,000/10,800,000) 47.31%
Goods available for sale 5,670,000 12,200,000
Less: Net sales 10,250,000
Ending inventory at retail 1,950,000
FIFO cost (1,950,000x47.31%) 922,545
Goods available for sale 5,670,000
Ending inventory at FIFO cost (922,545)
Cost of goods sold 4,747,455
