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AFM101 Chapter Notes - Chapter 8: Liquid Oxygen, Perpetual Inventory, Financial Statement

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lilacmouse857
7 Jun 2018
School
University of Waterloo
Department
Accounting & Financial Management
Course
AFM101
Professor
Donna Psutka

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AFSA Education
(4) COST OF SALES
Cost of Sales (COS) directly related to Sales Revenue.
o Sales Revenue = [# of units sold] * [sale price].
o Cost of sales = [# of units sold] * [unit costs OR cost per unit].
Includes all costs of the merchandise purchased of the finished goods sold
during the period.
Inventory (Balance Sheet) and Cost of Sales (Statement of Earnings):
o BI = Beginning inventory; stock of finished goods inventory.
o P = New purchases that are added to inventory.
o Cost of goods available for sale = [cost of BI] + [cost of purchases (or additions
to finished goods) for the period].
o EI = Ending inventory; what remains unsold at the end of the period ending
inventory of finished goods is reported on the Statement of Financial Position.
EI for one accounting period is the BI for the next accounting period.
o Cost of sales = portion of cost of goods available for sale that are actually sold
becomes the Cost of Sales on the Statement of Earnings.
o Cost of Sales Equation: BI + P – EI = COS.
o Cost of goods available for sale Equation: BI + P = COG available for sale.
o Example: Merchandise inventory T-Account.
LO2 Compare methods for controlling and keeping track of inventory, and analyze the effects of
inventory error on the financial statements.
(1) INTERNAL CONTROL OF INVENTORY
Inventory 2nd most vulnerable to theft, after cash.
Efficient management of inventory to avoid (1) cost of stock-outs & (2) overstock
situations.
Controls to safeguard inventories:
1. Separation of responsibilities (inventory accounting & physical handling).
2. Storage of inventory protect from theft & damage.
3. Limit access to inventory to authorized employees.
4. Maintaining perpetual inventory records.
5. Comparing perpetual records to periodic physical counts of inventory.
(2) PERPETUAL & PERIODIC INVENTORY SYSTEMS
Amounts of COS and EI can be determined using 2 different inventory systems:
(a) PERPETUAL
Detailed inventory record is maintained, recording each purchase and sale during the
accounting period.
Maintained through a transaction-by-transaction basis.
Gives Cost of EI and COS at any point in time.
Purchase transactions are directly recorded in an inventory account.
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Document Summary

Cost of sales (cos) directly related to sales revenue: sales revenue = [# of units sold] * [sale price], cost of sales = [# of units sold] * [unit costs or cost per unit]. Includes all costs of the merchandise purchased of the finished goods sold during the period. Lo2 compare methods for controlling and keeping track of inventory, and analyze the effects of inventory error on the financial statements. (1) internal control of inventory. Inventory 2nd most vulnerable to theft, after cash. Efficient management of inventory to avoid (1) cost of stock-outs & (2) overstock situations. Amounts of cos and ei can be determined using 2 different inventory systems: (a) perpetual. Detailed inventory record is maintained, recording each purchase and sale during the accounting period. Gives cost of ei and cos at any point in time.

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Related Questions

10.

Ferris Company began 2016 with 6,000 units of its principalproduct. The cost of each unit is $6. Merchandise transactions forthe month of January 2016 are as follows:

Purchases
Date ofPurchase Units Unit Cost* Total Cost
Jan. 10 5,000 $ 7 $ 35,000
Jan. 18 6,000 8 48,000
Totals 11,000 $ 83,000
*Includes purchase price andcost of freight.
Sales
Date of Sale Units
Jan. 5 3,000
Jan. 12 2,000
Jan. 20 4,000
Total 9,000
8,000 units were on hand at theend of the month.
Required:

Calculate January's ending inventory and cost of goods sold forthe month using each of the following alternatives:

FIFO Cost of Goods Available for Sale Cost of Goods Sold - Periodic FIFO Ending Inventory - Periodic FIFO
# of units Cost per unit Cost of Goods Available for Sale # of units sold Cost perunit Cost of Goods Sold # of units in ending inventory Cost per unit Ending Inventory
BeginningInventory 6,000 $6.00 $36,000 6,000 $6.00 $36,000 $6.00 $0
Purchases:
January 10 5,000 $7.00 35,000 $7.00 0 $7.00 0
January 18 6,000 $8.00 48,000 $8.00 0 $8.00 0
Total 17,000 $119,000 6,000 $36,000 $0
LIFO Cost of Goods Available for Sale Cost of Goods Sold - Periodic LIFO Ending Inventory - Periodic LIFO
# ofunits Cost perunit Cost ofGoods Available for Sale # of unitssold Cost perunit Cost ofGoods Sold # of unitsin ending inventory Cost perunit EndingInventory
Beginning Inventory
Purchases:
January 10
January 18
Total
AverageCost Cost ofGoods Available for Sale Cost ofGoods Sold - Average Cost EndingInventory - Average Cost
# of units Average Cost per unit Cost of Goods Available for Sale # of units sold Average Cost per Unit Cost of Goods Sold # of units in ending inventory Average Cost per unit Ending Inventory
Beginning Inventory 6,000 $36,000
Purchases:
January 10 5,000 35,000
January 18 6,000 48,000
Total 17,000 $119,000
PerpetualLIFO: Cost of Goods Available for Sale Cost of Goods Sold - January 5 Cost of Goods Sold - January 12 Cost ofGoods Sold - January 20 Inventory Balance
# of units Cost per unit Cost of Goods Available for Sale # of units sold Cost per unit Cost of Goods Sold # of units sold Cost per unit Cost of Goods Sold # of unitssold Cost perunit Cost ofGoods Sold # of units in ending inventory Cost per unit Ending Inventory
Beg. Inventory
Purchases:
January 10
January 18
Total
Perpetual Average Inventory on hand Cost of Goods Sold
# of units Cost per unit Inventory Value # of units sold Avg.Cost per unit Cost of Goods Sold
Beginning Inventory
Sale - January5
Subtotal Average Cost
Purchase - January 10
Subtotal Average Cost
Sale - January12
Subtotal Average Cost
Purchase - January18
SubtotalAverage Cost
Sale - January 20
Total

The following balances are from the accounts of CrabtreeMachining Company:

January 1 (Beginning) December 31 (Ending)
Direct materials inventory $ 98,500 $ 110,700
Work-in-process inventory 107,200 105,100
Finished goods inventory 43,100 46,400

Direct materials purchased during the year amount to $513,400,and the cost of goods sold for the year was $1,870,000.

Required:

Prepare a cost of goods sold statement.

CRABTREE MACHINING COMPANY
Cost of Goods Sold Statement
For the Year Ended December 31
Beginning work-in-process inventory $107,200
Manufacturing costs:
Direct materials:
Beginning inventory $98,500
Purchases 513,400
Materials available $611,900
Less: Ending inventory 110,700
Direct materials used $501,200
Other manufacturing costs
Total manufacturing costs 501,200
Total costs ofwork-in-process $608,400
Less: Ending work-in-process 105,100
Cost of goods manufactured $503,300
Beginning finished goods inventory 43,100
Finished goods available forsale $546,400
Less: Ending finished goods inventory 46,400
Cost of goods sold $500,000

************I HAVE FIGURED OUT EVERY NUMBER BESIDES THE OTHERMANUFACTURING COST!!!! HOW DO I FIGURE OUT THATNUMBER???????????????????? ONCE I FIGURE OUT THAT NUMBER IT WILLCHANGE THE OTHER NUMBERS, SO THE PROBLEM WILL BE CORRECT.

21. Altira Corporation uses a periodic inventory system. Thefollowing information related to its merchandise inventory duringthe month of August 2016 is available:

Aug.1 Inventory onhand—2,000 units; cost $6.10 each.
8 Purchased 10,000units for $5.50 each.
14 Sold 8,000 units for$12.00 each.
18 Purchased 6,000units for $5.00 each.
25 Sold 7,000 units for$11.00 each.
31 Inventory onhand—3,000 units.
Required:

Determine the inventory balance Altira would report in itsAugust 31, 2016, balance sheet and the cost of goods sold it wouldreport in its August 2016 income statement using each of thefollowing cost flow methods: (Round "Average Cost per Unit"to 2 decimal places.)

FIFO Cost of Goods Available for Sale Cost of Goods Sold - Periodic FIFO Ending Inventory - Periodic FIFO
# of units Cost per unit Cost of Goods Available for Sale # of units sold Cost perunit Cost of Goods Sold # of units in ending inventory Cost per unit Ending Inventory
BeginningInventory 2,000 $6.10 $12,200 2,000 $6.10 $12,200 $6.10 $0
Purchases:
August 8 10,000 $5.50 55,000 $5.50 $5.50 0
August 18 6,000 $5.00 30,000 3,000 $5.00 15,000 $5.00
Total 18,000 $97,200 5,000 $27,200 0 $0
AverageCost Cost ofGoods Available for Sale Cost ofGoods Sold - Average Cost EndingInventory - Average Cost
# of units Average Cost per unit Cost of Goods Available for Sale # of units sold Average Cost per Unit Cost of Goods Sold # of units in ending inventory Average Cost per unit Ending Inventory
Beginning Inventory
Purchases:
August 8
August 18
Total 0 $0 $0 $0
LIFO Cost of Goods Available for Sale Cost of Goods Sold - Periodic LIFO Ending Inventory - Periodic LIFO
# ofunits Cost perunit Cost ofGoods Available for Sale # of unitssold Cost perunit Cost ofGoods Sold # of unitsin ending inventory Cost perunit EndingInventory
Beginning Inventory 2,000 $6.10 $12,200 $6.10 $0 $6.10
Purchases:
August 8 10,000 $5.50 55,000 $5.50 $5.50
August 18 6,000 $5.00 30,000 $5.00 $5.00 0
Total 18,000 $97,200 0 $0 0 $0