Question

Mercer Inc. is a retailer operating in British Columbia. Mercer uses the perpetual inventory method. All sales returns from customers result in the goods being returned to inventory; the inventory is not damaged. Assume that there are no credit transactions; all amounts are settled in cash. You are provided with the following information for Mercer Inc. for the month of January 2014.

Date Description Quantity Unit Cost
Jan 1 Beginning inventory 280 $14
Jan 5 Purchase 392 $17
Jan 8 Sale 308 $28
Jan 10 Sale return 28 $28
Jan 15 Purchase 154 $20
Jan 16 Purchase return 14 $20
Jan 20 Sale 252 $31
Jan 25 Purchase 56 $22
a. Calculate the Moving-average cost per unit at January 1, 5, 8, 15, 20, & 25.

b. For each of the following cost flow assumptions, calculate cost of goods sold, ending inventory, and gross profit. (1) LIFO. (2) FIFO. (3) Moving-average cost.

Answer 1

Answer:

Date Description           Quantity           Unit Cost      Total Cost

Jan 1 Beginning inventory  280                $14             $ 3920

Jan 5 Purchase                  392                   $17            $ 6644

Jan 8 Sale                         308                   $28            $ 8624

Jan 10 Sale return              28                    $28            $ 784

Jan 15 Purchase             154                       $20            $ 3080

Jan 16 Purchase return      14                    $20            $ 280

Jan 20 Sale                      252                     $31           $ 7812

Jan 25 Purchase              56                        $22        $ 1232

Total Units 868 at  $ 14596

Average Cost = $ 16.82

Moving Average Cost Method

Date             Description       Quantity       Unit Cost       Balance

Jan 1    Beginning inventory           280        $14               $ 3920

Jan 5        Purchase                     392          $17                $ 6644

Units                                           672                               $ 10564     15.72

Jan 8            Sale                        308          $28                 $ 8624

Units                                            364          15.72            5722.17

Jan 10            Sale return          28            $28                   $ 784

Jan 15            Purchase            154            $20                   $3080

Units                                        546                                    9586.17      17.55

Jan 16         Purchase return      14            $20                   $280

Jan 20            Sale                  252             $31                    $7812

Units                                        280       17.55                     4914

Jan 25             Purchase         56             $22                     $1232

Units                                        336                                      6146             $ 18.29

Moving-average cost Ending Inventory= $ 6164

Ending Units 336

FIFO Ending Inventory = $ 6454

56  units at   $22    =    $ 1232

154   units at  $20   =    $ 3080

126 units  at  $17    = $ 2142

LIFO Ending Inventory = $ 4872

280 units at  $14       =      $ 3920

56 units at     $17    =  $ 952

Gross Profit Inventory = $ 16.82 * 336= $ 5651.52

Moving Average Cost = 336* 18.29= $ 6146

FIFO Cost of Goods Sold= Total Sales - Ending Inventory FIFO

                                            =8624-784+ 7812- 6454

                                           =15652- 6454= $ 9198

LIFO Cost of Goods Sold= Total Sales - Ending Inventory LIFO

                                        =  15652- 4872=$ 10780

Gross Profit Cost of Goods Sold= Total Sales - Ending Inventory Gross Profit =15652- 5651.52= $ 10,000.48

Moving-average cost Cost of Goods Sold= Sales - Ending Inventory=

15652-$ 6164= $ 9488

Gross Profit:

1)  LIFO= 4872

2) FIFO= 6454

3) Moving Average 6164