Chapter 5: Problem Set A

Problem 5-1A: Perpetual Inventory Costing - Warnerwoods Company Given Information: Warnerwoods Company uses a perpetual inventory system with the following March purchases and sales data. The units sold consist of: • • • • 80 units from beginning inventory, 340 units from the March 5 purchase, 40 units from the March 18 purchase, and 120 units from the March 25 purchase. 1. Compute Cost of Goods Available for Sale and Number of Units Available for Sale: We need to calculate both total cost and total units available for sale. Date Purchases Unit Cost Units Sold Total Units Total Cost Beginning 200 units $50 200 units $10,000 March 5 400 units $55 400 units $22,000 March 18 100 units $60 100 units $6,000 March 25 300 units $65 300 units $19,500 Total Units Available for Sale = 200 + 400 + 100 + 300 = 1,000 units. Total Cost of Goods Available for Sale = $10,000 + $22,000 + $6,000 + $19,500 = $57,500. 2. Compute the Number of Units in Ending Inventory: • • Units Sold = 80 (Beginning) + 340 (March 5) + 40 (March 18) + 120 (March 25) = 580 units. Units in Ending Inventory = 1,000 (Total units) − 580 (Units sold) = 420 units. 3. Compute the Cost Assigned to Ending Inventory Using Different Methods: a) FIFO (First-In, First-Out): FIFO assumes the earliest purchases are sold first, so ending inventory consists of the most recent purchases. • • 300 units from March 25 @ $65 = $19,500 100 units from March 18 @ $60 = $6,000 • 20 units from March 5 @ $55 = $1,100 Total Ending Inventory (FIFO) = $19,500 + $6,000 + $1,100 = $26,600. b) LIFO (Last-In, First-Out): LIFO assumes the latest purchases are sold first, so ending inventory consists of the oldest purchases. • • 120 units from Beginning Inventory @ $50 = $6,000 300 units from March 5 @ $55 = $16,500 Total Ending Inventory (LIFO) = $6,000 + $16,500 = $22,500. c) Weighted Average: Weighted average cost per unit = Total cost of goods available for sale ÷ Total units available for sale = $57,500 ÷ 1,000 units = $57.50 per unit. • 420 units @ $57.50 = $24,150. d) Specific Identification: Based on the data provided, the ending inventory consists of: • • • 180 units from March 25 @ $65 = $11,700 5 units from March 18 @ $60 = $300 15 units from beginning inventory @ $50 = $750 Total Ending Inventory (Specific Identification) = $11,700 + $300 + $750 = $12,750. 4. Compute Gross Profit for Each Method: Gross Profit = Sales − Cost of Goods Sold (COGS). Sales = 580 units × $100 = $58,000. a) FIFO Gross Profit: • • COGS (using FIFO) = $57,500 (Goods available) − $26,600 (Ending Inventory) = $30,900. Gross Profit = $58,000 − $30,900 = $27,100. b) LIFO Gross Profit: • • COGS (using LIFO) = $57,500 (Goods available) − $22,500 (Ending Inventory) = $35,000. Gross Profit = $58,000 − $35,000 = $23,000. c) Weighted Average Gross Profit: • • COGS (using Weighted Average) = $57,500 (Goods available) − $24,150 (Ending Inventory) = $33,350. Gross Profit = $58,000 − $33,350 = $24,650. d) Specific Identification Gross Profit: • • COGS (using Specific Identification) = $57,500 (Goods available) − $12,750 (Ending Inventory) = $44,750. Gross Profit = $58,000 − $44,750 = $13,250. Problem 5-2AA: Periodic Inventory Costing - Warnerwoods Company Using the same data as Problem 5-1A but assuming the periodic inventory system, we will follow similar steps to calculate the cost of goods available for sale, ending inventory, and gross profit using the FIFO, LIFO, Weighted Average, and Specific Identification methods. 1. Cost of Goods Available for Sale and Number of Units Available: This remains the same as Problem 5-1A: • • Total Units Available for Sale = 1,000 units. Total Cost of Goods Available for Sale = $57,500. 2. Number of Units in Ending Inventory: The total number of units sold remains 580, leaving 420 units in ending inventory. 3. Ending Inventory Costs Using Different Methods: a) FIFO (First-In, First-Out): Ending inventory = $26,600 (as calculated in Problem 5-1A). b) LIFO (Last-In, First-Out): Ending inventory = $22,500 (as calculated in Problem 5-1A). c) Weighted Average: Ending inventory = $24,150 (as calculated in Problem 5-1A). d) Specific Identification: Ending inventory = $12,750 (as calculated in Problem 5-1A). 4. Gross Profit for Each Method: a) FIFO Gross Profit: Gross Profit = $27,100 (as calculated in Problem 5-1A). b) LIFO Gross Profit: Gross Profit = $23,000 (as calculated in Problem 5-1A). c) Weighted Average Gross Profit: Gross Profit = $24,650 (as calculated in Problem 5-1A). d) Specific Identification Gross Profit: Gross Profit = $13,250 (as calculated in Problem 5-1A). This concludes the calculations for Problem 5-1A and 5-2AA for Warnerwoods Company using perpetual and periodic inventory systems.