Question

QUESTION 8 (Show Workings)

The following information relates to the sale and purchase of inventory during January by CNC Pty Ltd., which uses the perpetual inventory method.

January           1            Beginning Inventory               150 items @ $3 = $450

January         14            Purchases                               450 items @ $6 = $2,700

January          25           Sales                                       300 items @ $10 = $3,000

January         31           Ending Inventory                   300 items

Required:

Calculate the Cost of Sales and the value of Ending Inventory for each of the methods indicated below based on the information provided on purchases and sales during the month of January.

1. Cost of Sales using average cost                     $__________

2. Cost of Sales using FIFO                               $__________

3. Ending inventory using average cost               $__________

4. Ending Inventory using FIFO                         $__________

Answer 1

Solution:-

Sr. No.	Particulars	Amount ($)
a.	Cost of sales using average cost	$ 1,575
b.	Cost of sales using FIFO	$ 1,350
c.	Ending inventory using average cost	$1,575
d.	Ending inventory using FIFO	$1,800

Explanation:-

a &c:-

Average cost = (450+2,700) / (150 + 450) = $5.25

Ending inventory = $5.25 * 300 = $1,575

Cost of goods sold = $5.25 * 300 = $1,575

b:-

Cost of sales = (150 * $3) + (150 * $6) = $1,350

d:-

Ending inventory = (450 - 150) * $6 = $1,800