Q 20E-3 - Horngren'S Financial And Managerial Accounting

Question

Assume that AB Tire Store completed the following perpetual inventory transactions for a line of tires:

May 1          Beginning merchandise inventory           16 tires @ \( 65 each

      11          Purchase                                                     10 tires @ \) 78 each

      23          Sale                                                              12 tires @ \( 88 each

      26          Purchase                                                     14 tires @ \) 80 each

      29          Sale                                                              18 tires @ $ 88 each

 

Requirements

3. Compute cost of goods sold and gross profit using the weighted-average inventory costing method. (Round weighted-average cost per unit to the nearest cent and all other amounts to the nearest dollar.)

Step-by-Step Solution

Answer

Cost of goods sold: $2,190

Gross Profit: $450

Step-by-Step-Solution Step 1: Computation of cost of goods sold using weighted average

Date	Purchase/opening			Sales			Balance
	Units	Cost per unit	Amount	Units	Cost per unit	Amount	Units	Cost per unit	Amount
May1	16	$65	$1,040				16	$65	$1,040
11	10	$78	$780				26	$70	$1,820
23				12	$70	$840	14	$70	$980
26	14	$80	$1,120				28	$75	$2,100
29				18	$75	$1,350	10	$75	$750
Total	40		$2,940	30		$2,190	10	$75	$750

Step 2: Calculation of gross profit

$\begin{array}{rcl}\mathit{N}\mathit{e}\mathit{t}\mathit{R}\mathit{e}\mathit{v}\mathit{e}\mathit{n}\mathit{u}\mathit{e}& \mathbf{=}& \mathit{S}\mathit{a}\mathit{l}\mathit{e}\mathit{v}\mathit{a}\mathit{l}\mathit{u}\mathit{e}\mathit{o}\mathit{f}\mathbf{23}\mathit{r}\mathit{d}\mathit{M}\mathit{a}\mathit{y}\mathbf{+}\mathit{S}\mathit{a}\mathit{l}\mathit{e}\mathit{v}\mathit{a}\mathit{l}\mathit{u}\mathit{e}\mathit{o}\mathit{f}\mathbf{29}\mathit{t}\mathit{h}\mathit{M}\mathit{a}\mathit{y}\\ & \mathbf{=}& \mathbf{12}\mathbf{\times }\mathbf{\$}\mathbf{88}\mathbf{+}\mathbf{18}\mathbf{\times }\mathbf{\$}\mathbf{88}\\ & \mathbf{=}& \mathbf{30}\mathbf{\times }\mathbf{\$}\mathbf{88}\\ & \mathbf{=}& \mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{640}\\ & & \end{array}$

$\begin{array}{rcl}\mathit{G}\mathit{r}\mathit{o}\mathit{s}\mathit{s}\mathit{P}\mathit{r}\mathit{o}\mathit{f}\mathit{i}\mathit{t}& \mathbf{=}& \mathit{N}\mathit{e}\mathit{t}\mathit{R}\mathit{e}\mathit{v}\mathit{e}\mathit{n}\mathit{u}\mathit{e}\mathbf{-}\mathit{C}\mathit{o}\mathit{s}\mathit{t}\mathit{o}\mathit{f}\mathit{g}\mathit{o}\mathit{o}\mathit{d}\mathit{s}\mathit{s}\mathit{o}\mathit{l}\mathit{d}\\ & \mathbf{=}& \mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{640}\mathbf{-}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{190}\\ & \mathbf{=}& \mathbf{\$}\mathbf{450}\end{array}$