Question

At the beginning of its operations in July 2020, Wheaton Pet Shop Ltd. began with 9,300 units of inventory that it purchased at a cost of $16.00 each. The company’s purchases during July were as follows:

July 5		7,900 units @ $20.00
Sales during July:
July 2		8,000 units
July 27		5,500 units

Wheaton Pet Shop uses a perpetual inventory system.

Calculate the cost of goods sold for July using the weighted-average cost formula. (Round calculations for cost per unit to 2 decimal places, e.g. 10.52 and final answer to 0 decimal places, e.g. 61,052.)

Cost of goods sold

$Enter the cost of goods sold in dollars rounded to 0 decimal places.

Calculate the cost of goods sold for July using the first-in, first-out cost formula.

Cost of goods sold

$Enter the cost of goods sold in dollars.

Which of the two inventory cost formulas results in the greater gross margin for July?

The Select cost formula.                                                                       FIFOWeighted-average cost formula results in a greater gross margin for July.

Which of the two inventory cost formulas results in the larger inventory balance at the end of July? (Round calculations for cost per unit to 2 decimal places, e.g. 10.52 and final answers to 0 decimal places, e.g. 61,052.)

		Ending Inventory
Weighted-average		$Enter a dollar amount rounded to 0 decimal places.
FIFO		$Enter a dollar amount rounded to 0 decimal places.

The Select cost formula.                                                                      FIFOWeighted-average cost formula results in a larger inventory balance at the end of July.

Answer 1

a)The cost of goods sold for July using the weighted average method is calculated as follows:

Ending Inventory = 9,300 units - 8,000 units + 7,900 units - 5,500 units

                         = 3,700 Units

Cost Per Unit = (9300 * $16 + 7,900 * $ 20 ) / ( 9,300 units + 7,900 units)

                    = $148,800 + $158,000 / 17,200 Units

                    = $306,800 / 17,200 Units

                     = $17.84

Ending Inventory in cost = 3,700 Units * $17.84

                                  = $66,000

Cost of goods sold = Begining Inventory + Purchases - Ending Inventory

                            = 9300 * $16 + 7,900 * $ 20 - $66,000

                            = $148,800 + $158,000 - $66,000

                            = $240,800

Note: Gross Profit is not calculated because there is no selling price is given

b)The cost of goods sold for July using the FIFO method is calculated as follows:

Date		Purchase	Sale	Ending Inventory
July 1	Begining Inventory			9300 * $16 = $ 148,800
July 2	Sale		8000 * $16 = $128,000	1300 * $16 = $ 20,800
July 5	Purchase	7,900 * $ 20 = $158,000		1300 * $16 = $ 20,800
				7,900 * $ 20 = $158,000
July 27	Sale		1300 * $16 = $ 20,800	3,700 * $ 20= $74,000
			4200 * 20 = $84,000
		Ending Inventory		3,700 = $74,000

Ending Inventory in cost = 3,700 * $ 20

                               = $74,000

Cost of goods sold = Begining Inventory + Purchases - Ending Inventory

                            = 9300 * $16 + 7,900 * $ 20 - $74,000

                            = $148,800 + $158,000 - $74,000

                            = $232,800

1) Which of the two inventory cost formulas results in the greater gross margin for July?

Gross Profit is not calculated because there is no selling unit price is given

2) Which of the two inventory cost formulas results in the larger inventory balance at the end of July?

Under the FIFO method there is the larger inventory balance at the end of July.