Inventory Management

1. Inventory Valuation
1
Lecture explanation and exercises

2. Warnerwoods company uses perpetual inventory system. It entered into the following purchases and
sales transactions for March.
Problem 6-1A
2
Required:
1- Compute cost of goods available for sale and the number of units available for sale.
2- Compute the number of units in ending inventory.
3- Compute the cost assigned to ending inventory using (a) FIFO, (b) LIFO, (c) weighted average, and (d) specific
identification. (For specific identification, the March 9 sale consisted of 80 units from beginning inventory and 340
units from the March 5 purchase; the March 29 sale consisted of 40 units from the March 18 purchase and 120 units
from the March 25 purchase.) (Round all amounts to cents.)
4- Compute gross profit earned by the company for each of the four costing methods in part 3.

3. Problem 6-1A
3
Required:
1- Compute cost of goods available for sale and the number of units available for sale.
Units available
Cost of goods available for sale
100 units @ $50.00
400 units @ $55.00
120 units @ $60.00
200 units @ $62.00
820 units
$ 5,000
22,000
7,200
12,400
$46,600
Beginning inventory
March 5
March 18
March 25

4. Problem 6-1A
4
Required:
1- Compute cost of goods available for sale and the number of units available for sale.
Units available
Cost of goods available for sale
100 units @ $50.00
400 units @ $55.00
120 units @ $60.00
200 units @ $62.00
820 units
$ 5,000
22,000
7,200
12,400
$46,600
Beginning inventory
March 5
March 18
March 25
2- Compute the number of units in ending inventory.
Units available (from part 1). 820 units
Less: Units sold (420 + 160) 580 units
Ending Inventory (units) 240 units

5. 3- Compute the cost assigned to ending inventory using (a) FIFO
5
Date Goods Purchased Cost of Goods Sold Inventory Balance
Mar. 1
Mar. 5 400 @ $55.00 = $22,000
100 @ $50.00 = $ 5,000
100 @ $50.00
400 @ $55.00 = $27,000
80 @ $55.00 = $ 4,400
Mar. 9 100 @ $50.00 = $
5,000
320 @ $55.00 =
$17,600
80 @ $55.00
120 @ $60.00 = $11,600
120 @ $60.00 = $ 7,200
200 @ $62.00 = $
12,400
Mar.
18
Mar.
25
80 @ $55.00
120 @ $60.00
200 @ $62.00 = $24,000
Mar.
29
80 @ $55.00 = $ 4,400
80 @ $60.00 = $ 4,800
$31,800
40 @ $60.00
200 @ $62.00 =
$14,800

6. 3- Compute the cost assigned to ending inventory using (a) FIFO, (b) LIFO, (c) weighted average, and (d) specific identification.
6
Date Goods Purchased Cost of Goods Sold Inventory Balance
Mar. 1
Mar. 5 400 @ $55.00 = $22,000
100 @ $50.00 = $ 5,000
100 @ $50.00
400 @ $55.00 = $27,000
80 @ $54.00 = $ 4,320
Mar. 9 420 @ $54.00 =
$22,680
80 @ $54.00
120 @ $60.00 = $11,520
120 @ $60.00 = $ 7,200
200 @ $62.00 = $
12,400
Mar.
18
Mar.
25
80 @ $54.00
120 @ $60.00
200 @ $62.00 = $23,920
Mar.
29
160 @ $59.80 = $ 9,568
$32,248
240 @ $59.80 =
$14,352
27,000 / 500 units = $54.00 average cost
11,520 / 200 units = $57.60 average cost
23,920 / 400 units = $59.80 average cost

7. 3- Compute the cost assigned to ending inventory using (d) specific identification. (For specific identification, the March 9
sale consisted of 80 units from beginning inventory and 340 units from the March 5 purchase; the March 29 sale consisted of 40
units from the March 18 purchase and 120 units from the March 25 purchase.) (Round all amounts to cents.)
7
Date Goods Purchased Cost of Goods Sold Inventory Balance
Mar. 1
Mar. 5 400 @ $55.00 = $22,000
100 @ $50.00 = $ 5,000
100 @ $50.00
400 @ $55.00 = $27,000
20 @ $50.00
60 @ $55.00 = $ 4,300
Mar. 9 80 @ $50.00 = $4,000
340 @ $55.00 =
$18,700
120 @ $60.00 = $ 7,200
200 @ $62.00 = $
12,400
Mar.
18
Mar.
25
20 @ $50.00
60 @ $55.00
120@ $60.00
200 @ $62.00 =
$23,900
Mar.
29
$32,248
20 @ $50.00
60 @ $55.00
120@ $60.00 = $ 11,500
40 @ $60.00 = $2,400
120 @ $62.00 = $7,440
20 @ $50.00
60 @ $55.00
80@ $60.00
80 @ $62.00 =
$14,060

8. 4- Compute gross profit earned by the company for each of the four costing methods in part 3.
FIFO
Weighted
Average
Specific
Identification
Sales*
Less: Cost of goods sold
Gross profit
*Sales = (420 units x $85.00) + (160 units x $95.00) = $50,900
$50,900 $50,900 $50,900
31,800
$ 19,100
32,248
$ 18,652
32,540
$ 18,360