13SE - Horngren'S Financial And Managerial Accounting

Question

Question: The periodic inventory records of Flexon Prosthetics indicate the following for the month of July:

Jul. 1 Beginning merchandise inventory 6 units @ \( 60 each

8 Purchase 5 units @ \) 67 each

15 Purchase 10 units @ \( 70 each

26 Purchase 5 units @ \) 85 each

 

At July 31, Flexon counts four units of merchandise inventory on hand.

 

Compute ending merchandise inventory and cost of goods sold for Flexon using theweighted-average inventory costing method.

Step-by-Step Solution

Answer

Ending Inventory:$280

Cost of goods sold:$1,540

 

Step-by-Step-Solution Step1: Computation on ending inventory under periodic inventory weighted average

In weighted average under periodic inventory, the cost of issued inventory is valued at the average prices. So the ending inventory would also be valued at average prices.

So in the given case, the cost of ending inventory would be as follow –

$$\begin{gathered} AverageCost=\frac{Openinginventory+TotalPurchase}{TotalInventory} \\ =\frac{6\times \$60+\left(5\times \$67+10\times \$70+5\times \$85\right)}{6+5+10+5} \\ =\frac{\$1,820}{26} \\ =\$70 \end{gathered}$$

$$\begin{gathered} Endinginevntoryvalue=Endinginventory\left(units\right)\times AverageCost \\ =4\times \$70 \\ =\$280 \end{gathered}$$

Step 2: Computation of cost of goods sold

$$\begin{gathered} Costofgoodssold=Openinginventory+TotalPurchase-Endinginventory \\ =6\times \$60+\left(5\times \$67+10\times \$70+5\times \$85\right)-\$280 \\ =\$360+\$1,460-\$280 \\ =\$1,540 \end{gathered}$$