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Answer:
a. Cost of Goods Sold under FIFO method - $ 29.800
Ending inventory under FIFO method - $ 28,400
b. Cost of Goods Sold under average cost method - $ 33,950
Ending inventory under average cost method - $ 24,250
Explanation:
Units Unit Cost Cost
Beginning Inventory 1,000 $10 $10,000
Purchase #1 1,800 $ 11 $ 19,800
Purchase #2 800 $ 13 $ 10,400
Purchase #3 1,200 $ 15 $ 18,000
Total available 4,800 $ 58,200
Units sold ( 2,800)
Ending Inventory 2,000
Computations under FIFO method
In the FIFO method of cost flows, the cost of goods sold are considered from the opening inventory and the earlier purchases. The ending inventory is from the later purchases.
Cost of goods sold
Units sold 2,800
Opening inventory 1,000 units @ $ 10 $ 10,000
Purchase # 1 1,800 units @ $ 11 $ 19,800
Total cost of Goods sold $ 29,800
Ending Inventory
Units on hand 2,000
Purchase #2 800 $ 13 $ 10,400
Purchase #3 1,200 $ 15 $ 18,000
Ending Inventory $ 28,400
Computations under Average Cost method
Under average cost method, the cost of goods sold and the ending inventory is valued at the average cost of the goods available for sale divided by the number of units.
The average cost is calculated by dividing the total cost by the available units
Total Cost $ 58,200
Units available 4,800
Average cost per unit $ 12.13
Cost of goods sold = Units sold * Average cost = 2,800 * $ 12.13 = $ 33,950
Ending Inventory- Units in hand * Average Cost = 2,000 * $ 12.13= $ 24,250
Answer:
(a) The cost of goods sold is $29, 800
The cost of closing inventory is $28, 400
(b) Cost of goods sold = $11 x 2, 800
= $30 ,800
Cost of closing inventory = 2, 000 x $11
= $22, 000
Explanation:
Below is a table of the data provided in the question
Units Unit Cost ($) Cost ($)
Beginning 1, 000 10 10, 000
Purchase #1 1, 800 11 19, 800
Purchase #2 800 13 10, 400
Purchase #3 1, 200 15 18, 000
(a) First-In, First-Out (FIFO) method:
FIFO method is a method used for the calculation of the cost of goods sold. This method assumes that the oldest products in a company’s inventory are sold first. The cost paid for the oldest inventory is the one used to calculate the cost of goods sold.
How to calculate the cost of goods sold:
• determine the cost of your oldest goods sold
• multiply that amount by the number of units sold
Answer: (a)
Units sold 2, 800 Unit cost Cost
Opening inventory 1, 000 $10 $10, 000
Purchase #1 1, 800 $11 $19, 800
2, 800 $29, 800
The cost of goods sold is $29, 800
Closing inventory:
Purchase #2 800 13 10, 400
Purchase #3 1, 200 15 18, 000
Total 28, 400
The cost of closing inventory is $28, 400
(b) Average Cost Method:
The average cost assigns a cost to inventory based on the total cost of goods purchased in a period divided by the total number of units purchased. This method is also known as the weighted average cost method.
How to calculate the cost of goods sold:
• find the average cost (divide the cost of all goods purchased, including opening inventory, by the number of goods on hand.
• Multiply that amount by the number of units sold
Average cost calculation:
Units Unit Cost ($) Cost ($)
Beginning 1, 000 10 10, 000
Purchase #1 1, 800 11 19, 800
Purchase #2 800 13 10, 400
Purchase #3 1, 200 15 8, 000
Total 4, 800 52, 800
Average cost = $52, 800 / 4, 800
= $11
Therefore,
Cost of goods sold = $11 x 2, 800
= $30 ,800
Closing inventory units = 4, 800 – 2, 800
= 2, 000 units
Cost of closing inventory = 2, 000 x $11
= $22, 000
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