Problem 65A Part Level Submission You are provided with the

Problem 6-5A (Part Level Submission) You are provided with the following information for Najera Inc. for the month ended June 30, 2017. Najera uses the periodic method for inventory Unit Cost or Selling Price $40 Date June 1 June 4 Purchase June 10 Sale June 11 Sale return June 18 Purchase June 18 Purchase return June 25 Sale June 28 Purchase Description Quantity 40 135 110 15 Beginning inventory 70 70 46 46 75 50 10 65 30

Solution

LIFO FIFO AVERAGE COST Gross Profit Rate 36.6% 40.3% 38.3% Workings: Purchase Sales Date Description Quantity Rate Amount Quantity Rate Amount June 1 Beginning Inventory 40 $               40 $          1,600 June 4 Purchase 135 $               44 $          5,940 June 10 Sale 110 $          70 $    7,700 June 11 Sales return -15 $          70 $   -1,050 June 18 Purchase 55 $               46 $          2,530 June 18 Purchase Return -10 $               46 $            -460 June 25 Sale 65 $          75 $    4,875 June 28 Purchase 30 $               50 $          1,500 Total 250 $       11,110 160 $ 11,525 Step-1:Calculation of cost of goods sold under each method FIFO: FIFO stands for first in first out.It means inventory bought first is sold first. Cost of goods sold will be recorded as follows: Date Description Quantity Rate Amount June 1 Beginning Inventory 40 $               40 $          1,600 June 4 Purchase 120 $               44 $          5,280 Total 160 $          6,880 LIFO: LIFO stands for last in first out.It means inventory which is bought in last is sold first. Cost of goods sold will be recorded as follows: Date Description Quantity Rate Amount June 4 Purchase 85 $               44 $          3,740 June 18 Purchase 45 $               46 $          2,070 June 28 Purchase 30 $               50 $          1,500 Total 160              7,310 Average cost : Average cost per unit = Total cost of goods avaialable for sale / Total Units available for sale = $       11,110 / 250 = $         44.44 Costs of goods sold = Units of sold x Average cost per unit = 160 x $          44.44 = $   7,110.40 Step-2:Calculation of gross Profit rate under each method FIFO LIFO Average cost Sales a $ 11,525.00 $ 11,525.00 $ 11,525.00 Cost of goods sold b $   6,880.00 $   7,310.00 $    7,110.40 Gross Profit c=a-b $   4,645.00 $   4,215.00 $    4,414.60 Gross Profit percentage d=c/a 40.3% 36.6% 38.3%