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Chapter 6: Q29PGA_5 (page 367)

Steel Mill began August with 50 units of iron inventory that cost \(35 each. During August, the company completed the following inventory transactions:

Units Unit Cost Unit Sales Price

Aug. 3 Sale 45 \) 85

8 Purchase 90 $ 54

21 Sale 85 88

30 Purchase 15 58

Requirements

5. Compute gross profit for August using FIFO, LIFO, and weighted-average inventory costing methods.

Short Answer

Expert verified

Gross profit under FIFO, LIFO, and average cost is $5,235, $5,140, $5,225 respectively.

Step by step solution

01

Step-by-Step SolutionStep 1: Computation of total revenue

TotalRevenue=SalevalueofAug3+SalevalueofAug21=45×$85+85×$88=$3,825+$7,480=$11,305

02

Gross profit under FIFO

GrossProfit=TotalRevenue-COGSunderFIFO=$11,305-$6,070=$5,235

03

Gross profit under LIFO

GrossProfit=TotalRevenue-COGSUnderLIFO=$11,305-$6,165=$5,140

04

Gross profit under the weighted average method

GrossProfit=TotalRevenue-COGSunderweightedaveraged=$11,305-$6,080=$5,225

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Most popular questions from this chapter

Question:New York Pool Supplies’s merchandise inventory data for the year ended December 31, 2019, follow:

Net Sales Revenue\( 58,000

Cost of Goods Sold:

Beginning Merchandise Inventory\) 4,900

Net Cost of Purchases 32,500

Cost of Goods Available for Sale37,400

Less: Ending Merchandise Inventory 4,700

Cost of Goods Sold32,700

Gross Profit \( 25,300

Requirements

1. Assume that the ending merchandise inventory was accidentally overstated by\)1,800. What are the correct amounts for cost of goods sold and gross profit?

Fit Gym began January with merchandise inventory of 78 crates of vitamins that cost a total of \(4,290. During the month, Fit Gym purchased and sold merchandise on account as follows

Jan. 5 Purchase 156 crates @ \) 64 each

13 Sale 180 crates @ \( 100 each

18 Purchase 114 crates @ \) 75 each

26 Sale 150 crates @ $ 116 each

Requirements

3. Prepare a perpetual inventory record, using the weighted-average inventory costing method, and determine the company’s cost of goods sold, ending merchandise inventory, and gross profit. (Round weighted-average cost per unit to the nearest cent and all other amounts to the nearest dollar.)

Discuss the materiality concept. Is the dollar amount that is material the same for a company that has annual sales of \(10,000 compared with a company that has annual sales of \)1,000,000?

Discuss some measures that should be taken to maintain control over merchandise inventory.

How is inventory turnover calculated, and what does it measure?
See all solutions

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