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Determine the cost of goods available for sale. Problem.
Glanville Distribution markets CDs of the performing artist Harrilyn Clooney. At the beginning of March, Glanville had in beginning inventory 1,500 Clooney CDs with a unit cost of $7. During March Glanville made the following purchases of Clooney CDs.
March 5 3,000 @ $8 March 21 4,000 @ $10
March 13 5,500 @ $9 March 26 2,000 @ $11
During March 12,500 units were sold. Glanville uses a periodic inventory system.
Determine the cost of goods available for sale.
If you could explain to me how to do this it would be great! I have been going crazy trying to answer it!
March 5 3,000 @ $8 March 21 4,000 @ $10
March 13 5,500 @ $9 March 26 2,000 @ $11
During March 12,500 units were sold. Glanville uses a periodic inventory system.
Determine the cost of goods available for sale.
If you could explain to me how to do this it would be great! I have been going crazy trying to answer it!
answers (3)
The answer is that it depends on what method is used to calculate closing stock, each method involving a different way of calculating the unit price to attach to the remaining units of closing stock (3,500 units):
Under the weighted average method you look at the weighted average cost of units purchased in a period and apply this price to the closing stock. This could be done in two ways:
1. Including the opening stock, this gives a weighted average unit price of $9.22 and closing stock of $32,366.
2. Excluding the opening stock (kind of a hybrid of average and FIFO), giving a weighted average unit price of $9.45 and a closing stock of $33,069. this second method is generally preferred as it avoids historical polution of the average (especially where prices are volatile or increasing rapidly). Given the mention of period intentory in the question I think this is most likely the answer that the question is looking for.
Under first in, first out (FIFO) - you assume that the first units purchased were the first ones sold (meaning that the last units purchased are the ones left in stock). This would give a value of $37,000 for the closing stock (the 2,000 units purchased at $11 and 1,500 of the units purchased at $10).
Under last in, first out stock (LIFO) - lease commonly used method - you assume that the last units purchased were the first ones sold. This would give a value of $26,500 for the closing stock (the opening stock plus 2,000 units purchased at $8).
It may appear that the selling price of the CD's is irrelevant to the question however under accounting conventions you should ensure that the cost of goods is more than the expected selling price per unit (as the value of the stock should never exceed the expected selling price less any costs expected to be incurred to complete the sale).
Under the weighted average method you look at the weighted average cost of units purchased in a period and apply this price to the closing stock. This could be done in two ways:
1. Including the opening stock, this gives a weighted average unit price of $9.22 and closing stock of $32,366.
2. Excluding the opening stock (kind of a hybrid of average and FIFO), giving a weighted average unit price of $9.45 and a closing stock of $33,069. this second method is generally preferred as it avoids historical polution of the average (especially where prices are volatile or increasing rapidly). Given the mention of period intentory in the question I think this is most likely the answer that the question is looking for.
Under first in, first out (FIFO) - you assume that the first units purchased were the first ones sold (meaning that the last units purchased are the ones left in stock). This would give a value of $37,000 for the closing stock (the 2,000 units purchased at $11 and 1,500 of the units purchased at $10).
Under last in, first out stock (LIFO) - lease commonly used method - you assume that the last units purchased were the first ones sold. This would give a value of $26,500 for the closing stock (the opening stock plus 2,000 units purchased at $8).
It may appear that the selling price of the CD's is irrelevant to the question however under accounting conventions you should ensure that the cost of goods is more than the expected selling price per unit (as the value of the stock should never exceed the expected selling price less any costs expected to be incurred to complete the sale).
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voted helpful: cypheron
Voted as best: masontx
Add up the units purchased including the starting inventory. That's 16,000 units costing $146,000. I'm not too familiar with periodic inventory, but I would guess that the 3,500 (16,000-12,500) units available at the end of March cost $37,000 (2,000x11 + 1,500x10).
The wording is vague so it's not entirely clear whether the answer is $146,000 or $37,000. $37,000 may be more correctly called the cost of goods on hand.
The wording is vague so it's not entirely clear whether the answer is $146,000 or $37,000. $37,000 may be more correctly called the cost of goods on hand.
1500 x 7 = 10,500
3000 x 8 = 24,000
5500 x 9 = 49,500
4000 x10 =40,000
2000 x11 =22,000
------------------------
$146,000 = the total cost of goods available for sale during March.
Are you sure that you are not looking for the cost of goods that were sold?
In that case it would be (FIFO)
1500 x 7 = 10,500
3000 x 8 = 24,000
5500 x 9 = 49,500
1500 x10 =15,000
------------------------
99,000 = the cost of goods sold
Subtract 99,000 from 146,000 = 47,000 and you get the cost of goods available for sale at the beginning of April
3000 x 8 = 24,000
5500 x 9 = 49,500
4000 x10 =40,000
2000 x11 =22,000
------------------------
$146,000 = the total cost of goods available for sale during March.
Are you sure that you are not looking for the cost of goods that were sold?
In that case it would be (FIFO)
1500 x 7 = 10,500
3000 x 8 = 24,000
5500 x 9 = 49,500
1500 x10 =15,000
------------------------
99,000 = the cost of goods sold
Subtract 99,000 from 146,000 = 47,000 and you get the cost of goods available for sale at the beginning of April
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