Inventory valuation, Accounting Basics

The Kauai Surf Company sells high-end surfboards to tourists.  The inventory is purchased from a manufacturer in Honolulu.                                                                                                           

At the beginning of 2010, the company had 20 surfboards on hand which they had purchased at a cost of $50 each.  During 2010, they purchased an additional          40 surfboards at a cost of $60 each on June 12 and another 70 surfboards at a cost of $80 each.  At the end of the year, there were 30 unsold urfboards in ending inventory.  The company uses the periodic method of inventory.                                                                                   

For each of the following inventory valuation methods, determine (a) the ending            inventory value and (b) the cost of goods sold:                                                                                        

a) FIFO                                                                 

b) LIFO                                                                 

c) Weighted Average Cost                                                                          

                                                                Amount in $                      

Answers:                             Units (a)               cost price per unit (b)     Total cost (a*b)                

                Opening inventory          20           50           1000                      

                Purchased           40           60           2400                      

                Purchased           70           80           5600                      

                Total      130                         9000                      

                Less: Closing stock           30                                                          

                Sales      100                                                        

a)            Under FIFO                                                                        

 

                Computation of Cost of goods sold and closing inventory:                                            

                                                                Amount in $                      

                                Units (a)               cost price per unit (b)     Total cost (a*b)                

                Cost of goods sold           20           50           1000                      

                                40           60           2400                      

                                40           80           3200                      

                                                                6600                      

 

                Closing inventory             30           80           2400      

b)            Under LIFO                                                                        

 

                Computation of Cost of goods sold and closing inventory:                                            

                                                                Amount in $                      

                                Units (a)               cost price per unit (b)     Total cost (a*b)                

                Cost of goods sold           70           80           5600                      

                                30           60           1800      

                                                                7400      

                Closing inventory             10           60           600                        

                                20           50           1000                      

                                                                1600                      

c)            Under Weighted average method          

                Computation of Cost of goods sold and closing inventory:                                            

                                                                Amount in $                      

                                Units (a)               cost price per unit (b)     Total cost (a*b)                

                Opening inventory          20           50           1000                      

                Purchased           40           60           2400                      

                Purchased           70           80           5600                      

                Total      130                         9000                      

                Therefore weighted average cost per unit =9000/130                                    

                                                                         69.23                                           

                Cost of goods sold           =69.23*100                            6,923.08                                          

                Closing inventory             =69.23*30                              2,076.92           

Posted Date: 7/12/2012 3:07:19 AM | Location : United States







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