ACC 100 Chapter Notes - Chapter 6: Gross Profit

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violetplatypus517

19 Oct 2014

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Inventory costing methods are based on assumptions of cost flows, not on physical flows. Specific identification method an inventory costing method that relies on matching unit costs with the actual units sold. Calculate cost of goods sold independently by matching the units sold with their respective unit costs. Impractical to keep track of individual items of inventory sold. Management can manipulate income to make company look better than they actually are. Weighted average cost method an inventory costing method that assigns the same unit cost to all units available for sale during the period. Weighted average cost = cost of goods available for sale/units available for sale. Ending inventory = weighted average cost x number of units in ending inventory. Cost of goods can be calculated in 2 ways: Cost of goods = cost of goods available for sale ending inventory. Cost of goods = weighted average cost x number of units sold.

Related Questions

During July 2014, Micanopy, sold 500 units of its productsEmpire for $8,000. The following units were available.

Units Cost

BeginningInventory 200 $2

Purchase1 80 $4

Purchase2 120 $6

Purchase3 300 $9

Purchase4 180 $12

A sale of 500 units was made after purchase 3. Of the unitssold, 200 came from beginning inventory and 300 came from purchase3.

Determine the costs of goods available for sale and endinginventory in units. Then determine the costs that should beassigned to cost of goods sold and ending inventory under ach ofthe following assumptions. (For each alternative, show the grossmargin. Round unit costs to cents and totals to dollars.)

Costs are assigned under the periodic inventory system using a.)the specific identification method, b) the average-cost method, c.)FIFO method and d.) LIFO method

Costs are assigned under the perpetual inventory system usinga.) the average-cost method, b.) the FIFO method, and c) the LIFOmethod

E7A. Periodic and PerpetualSystems and Inventory Costing Methods

Cost of goods available forsale and ending inventory in units

Units

Cost

Total

Beginninginventory

200

$ 2

$ 400

Purchase 1

320

Purchase 2

120

720

Purchase 3

300

2,700

Purchase 4

180

2,160

Cost of goods available forsale

880

$6,300

Sale in units

500

Ending inventory inunits

380

Periodic inventorysystem

Specific identificationmethod:

Sales

$8,000

Cost of goods available forsale

Less endinginventory*

Cost of goodssold

Gross margin

$4,900

Purchase 1

units

lilackangaroo550

Background Information:

Transactions Units Unit Cost
Beginning inventory, January 1, 2009 1,800 $5.00
Transactions during 2009:
a. Purchase, January 30 2,500 6.20
b. Sale, March 14 ($10 each) (1,450 )
c. Purchase, May 1 1,200 8.00
d. Sale, August 31 ($10 each) (1,900 )

Problem:
Compute the amount of goods available for sale, ending inventory,and cost of goods sold at December 31, 2009, under each of thefollowing inventory costing methods. For Specific Identification,assume that the March 14, 2009, sale was selected two-fifths fromthe beginning inventory and three-fifths from the purchase ofJanuary 30, 2009. And that the sale of August 31, 2009, wasselected from the remainder of the beginning inventory, with thebalance from the purchase of May 1, 2009. (Do not round Weightedaverage cost per unit. Round your final answers to the nearestdollar amount.)

Goods available for sale Ending inventory Cost of goods sold
a. Last-in, first-out. $34,100 $11,170 $22,930
b. Weighted average cost. $34,100 $13,330 $20,770
c. First-in, first-out. $34,100 $15,490 $18,610
d. Specific identification. $34,100 ? ?

Definition:

Specific Identification - The inventory costing method thatidentifies the cost of the specific item that was sold.

I just need help with the specific identification part, I didall the other parts and got them right but I am confused with thewording on the specific information part.

If any one could explain it to me and show me how to do thisproblem then I will award them lifesaver points/karma

taupesardine251

PA7-1 Analyzing the Effects of Four Alternative Inventory Methods in a Periodic Inventory System [LO 7-3]

Gladstone Company tracks the number of units purchased and sold throughout each accounting period but applies its inventory costing method at the end of each period, as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the annual accounting period, December 31.

Transactions		Units			Unit Cost
Beginning inventory, January 1			1,600		$	45
Transactions during the year:
a.	Purchase, January 30		2,300			49
b.	Sale, March 14 ($100 each)		(1,250	)
c.	Purchase, May 1		1,000			75
d.	Sale, August 31 ($100 each)		(1,500	)

Assuming that for Specific identification method (item 1d) the March 14 sale was selected two-fifths from the beginning inventory and three-fifths from the purchase of January 30. Assume that the sale of August 31 was selected from the remainder of the beginning inventory, with the balance from the purchase of May 1.

Required:
1.	Compute the amount of goods available for sale, ending inventory, and cost of goods sold at December 31 under each of the following inventory costing methods: (Round intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.)

2-a.

Of the four methods, which will result in the highest gross profit?

	Last-in, first-out
	Weighted average cost
	First-in, first-out
	Specific identification

2-b.

Of the four methods, which will result in the lowest income taxes?

	Last-in, first-out
	Weighted average cost
	First-in, first-out
	Specific identification

coffeeduck922

ACC 100 Chapter Notes - Chapter 6: Gross Profit

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