Questions: Required information Problem 6-1A (Algo) Perpetual: Alternative cost flows LO P1 [The following information applies to the questions displayed below.] Warnerwoods Company uses a perpetual inventory system. It for March. Units ACO quired at cost Units Sold at Retail Date Activities 190 units 52.80 per unit March 5 Beginning inventory Purchase 270 units 57.80 per unit 350 units 87.80 per unit March 9 Sales 130 units 62.80 per unit Purchase 240 units 64.80 per unit 220 units 97.80 per unit March 29 Sales 570 units Totals 830 units Problem 6-1A (Algo) Part 4 4. Compute gross profit earned by the company for each of the four costing methods. For specific identification, units sold include 11 units from beginning inventory, 240 units from the March 5 purchase, 90 units from the March 18 purchase, and 130 units from the March 25 purchase. Note: Round weighted average cost per unit to two decimals and final answers to nearest whole dollar.

Required information Problem 6-1A (Algo) Perpetual: Alternative cost flows LO P1 [The following information applies to the questions displayed below.] Warnerwoods Company uses a perpetual inventory system. It for March. Units ACO quired at cost Units Sold at Retail Date Activities 190 units 52.80 per unit March 5 Beginning inventory Purchase 270 units 57.80 per unit 350 units 87.80 per unit March 9 Sales 130 units 62.80 per unit Purchase 240 units 64.80 per unit 220 units 97.80 per unit March 29 Sales 570 units Totals 830 units Problem 6-1A (Algo) Part 4 4. Compute gross profit earned by the company for each of the four costing methods. For specific identification, units sold include 11 units from beginning inventory, 240 units from the March 5 purchase, 90 units from the March 18 purchase, and 130 units from the March 25 purchase. Note: Round weighted average cost per unit to two decimals and final answers to nearest whole dollar.
Transcript text: Required information Problem 6-1A (Algo) Perpetual: Alternative cost flows LO P1 [The following information applies to the questions displayed below.] Warnerwoods Company uses a perpetual inventory system. It for March. Units ACO quired at cost & Units Sold at Retail Date Activities 190 units $ 52.80 per unit March 5 Beginning inventory Purchase 270 units @ $ 57.80 per unit 350 units $ $ 87.80 per unit March 9 Sales 130 units @ $ 62.80 per unit Purchase 240 units @ $ 64.80 per unit 220 units @ $ 97.80 per unit March 29 Sales 570 units Totals 830 units Problem 6-1A (Algo) Part 4 4. Compute gross profit earned by the company for each of the four costing methods. For specific identification, units sold include 11 units from beginning inventory, 240 units from the March 5 purchase, 90 units from the March 18 purchase, and 130 units from the March 25 purchase. Note: Round weighted average cost per unit to two decimals and final answers to nearest whole dollar.
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Solution

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To compute the gross profit earned by Warnerwoods Company using the four costing methods (FIFO, LIFO, Weighted Average, and Specific Identification), we need to follow these steps:

  1. Calculate Total Sales Revenue:

    • Total units sold = 350 units (March 5) + 220 units (March 18) = 570 units.
    • Sales price per unit = $87.80 (March 5) and $97.80 (March 18).
    • Total Sales Revenue = (350 units * $87.80) + (220 units * $97.80).

  2. Calculate Cost of Goods Sold (COGS) for each method:

    FIFO (First-In, First-Out):

    • The first units sold are from the beginning inventory and the March 5 purchase.
    • COGS = (190 units * $52.80) + (160 units * $57.80) + (220 units * $64.80).

    LIFO (Last-In, First-Out):

    • The last units purchased are sold first.
    • COGS = (240 units * $64.80) + (110 units * $57.80) + (220 units * $52.80).

    Weighted Average:

    • Calculate the average cost per unit = Total cost of inventory / Total units available.
    • COGS = Average cost per unit * Total units sold.

    Specific Identification:

    • Use the specific units identified in the problem.
    • COGS = (11 units * $52.80) + (240 units * $57.80) + (90 units * $64.80) + (130 units * $64.80).

  3. Calculate Gross Profit for each method:

    • Gross Profit = Total Sales Revenue - COGS.

Let's compute these values:

  1. Total Sales Revenue:

    • Total Sales Revenue = (350 * $87.80) + (220 * $97.80) = $30,730 + $21,516 = $52,246.

  2. COGS Calculations:

    FIFO:

    • COGS = (190 * $52.80) + (160 * $57.80) + (220 * $64.80) = $10,032 + $9,248 + $14,256 = $33,536.

    LIFO:

    • COGS = (240 * $64.80) + (110 * $57.80) + (220 * $52.80) = $15,552 + $6,358 + $11,616 = $33,526.

    Weighted Average:

    • Total cost of inventory = (190 * $52.80) + (270 * $57.80) + (240 * $64.80) = $10,032 + $15,606 + $15,552 = $41,190.
    • Total units available = 190 + 270 + 240 = 700 units.
    • Average cost per unit = $41,190 / 700 = $58.84.
    • COGS = $58.84 * 570 = $33,538.80 (rounded to $33,539).

    Specific Identification:

    • COGS = (11 * $52.80) + (240 * $57.80) + (90 * $64.80) + (130 * $64.80) = $580.80 + $13,872 + $5,832 + $8,424 = $28,708.80 (rounded to $28,709).

  3. Gross Profit Calculations:

    FIFO:

    • Gross Profit = $52,246 - $33,536 = $18,710.

    LIFO:

    • Gross Profit = $52,246 - $33,526 = $18,720.

    Weighted Average:

    • Gross Profit = $52,246 - $33,539 = $18,707.

    Specific Identification:

    • Gross Profit = $52,246 - $28,709 = $23,537.

Summary:

  • FIFO Gross Profit: $18,710
  • LIFO Gross Profit: $18,720
  • Weighted Average Gross Profit: $18,707
  • Specific Identification Gross Profit: $23,537
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