Question

A firm which prepares its financial statements according to U.S. GAAP and uses a periodic inventory system had the following transactions during the year: Date Activity Tons(000s) $ per Ton Beginning inventory 1 500 February Purchase 8 540 May Sales 5 600 July Purchase 2 575 November Sales 3 620 The cost of sales (in '000s) is closest to: Select one: A. $4,280 using LIFO. B. $4,342 using weighted average. C. $4,435 using LIFO. D. $4,390 using FIFO. E. $4,550 using FIFO.

Answer 1

Answer:

B. $4,342 using weighted average.

Explanation:

Note: The data in this question are merged together. They are therefore sorted before answering the question. See the attached pdf file for the complete question with the sorted data.

The explanation to the answer is now given as follows:

Also note: See the attached excel file for the calculations of cost of sales using FIFO, LIFO and Weighted Average methods (in red color).

First In First Out (FIFO) refers to the inventory method whereby the inventory items purchased first are sold first.

Last In First Out (LIFO) refers to the inventory method whereby the inventory items purchased last are sold first.

Weighted average cost method refers an inventory costing technique whereby the average cost per unit is calculated by dividing the total cost of the goods available for sale by the total number of units available for sales.

From the question, we can obtained:

Total Tons (000s) Sold = May Sales + November Sales = 5 + 3 = 8

From the attached excel file, we have:

Weighted average unit cost = Total Cost ($'000s) / Total Tons (000s)  Available for Sales =  5,970 / 11 =  $542.73

Cost of sales under weighted average = Total Tons (000s) Sold *  Weighted average unit cost =  8 * $542.73 = $4,342

Therefore, from the attached excel file and the calculations above, the correct option is B. $4,342 using weighted average.

Download xlsx

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