Natalie is busy establishing both divisions of her business (cookie classes and mixer sales) and completing her business diploma. Her goals for the next 11 months are to sell one mixer per month and to give two to three classes per week.

The cost of the fine European mixers is expected to increase. Natalie has just negotiated new terms with Kzinski that include shipping costs in the negotiated purchase price. (Mixers will be shipped FOB destination.)

Recall that Natalie has two mixers in inventory: mixer #1 (serial number 12459) and mixer #2 (serial number 23568). Inventory cost for each of these units is $545.

The following mixer purchase and sale transactions occur in February and March, 2014:

Feb. 3 Natalie orders three deluxe mixers on account from Kzinski Supply Co. for $1,650 ($550 each), FOB destination, terms n/30.

14 Natalie receives mixer #3 (serial number 49295), mixer #4 (serial number 56204), and mixer #5 (serial number 62897).

19 Natalie sells one deluxe mixer, mixer #4, for $1,050 cash.

March 3 Natalie orders two deluxe mixers on account from Kzinski Supply Co. for $1,142, FOB destination, terms n/30.

17 Natalie receives mixer #6 (serial number 69896) and mixer #7 (serial number 72531).

18 Natalie returns mixer #6. It is not the one ordered.

27 Natalie sells two deluxe mixers, mixer #2 and mixer #5, for a total of $2,100 cash.

All of the mixers Natalie has purchased and sold are identical. Natalie has accounted for all of these transactions by mixer number to ensure that she does not lose track of mixers on hand and mixers that have been sold. Natalie wonders if she is accounting for the costs of these mixers correctly.

Instructions

(a) Answer Natalie's concerns. Is Natalie accounting for these transactions correctly? Why or why not? What are the alternatives that Natalie could use in accounting for her mixer inventory?

(b) Given that Natalie has accounted for all of these transactions by mixer number, what is the total cost of goods sold for February and March, and the inventory balance at the end of March in Cookie Creations' accounting records?

(c) Using the average cost formula in a perpetual inventory system, prepare a schedule to track the purchases and sales of mixers, and the balance in the mixers inventory account. Use the format from Illustration 6-11.

(d) Prepare a journal entry to correct the March 31 inventory balance from the amount calculated in (b) to the amount determined in (c) assuming Natalie decided to use the average cost formula in a perpetual inventory system (instead of recording cost by specific mixer).

(e) Assume instead that Natalie had used the average cost formula to record all of the February and March transactions. Using the information prepared in (c) above, prepare the journal entries that would be required had Natalie used this cost formula.