Some of the information found on a detailed inventory card for Soave Stationery Ltd. for May is as follows:

Instructions

a. From the above data, calculate the ending inventory based on each of the following cost formulas. Assume that perpetual inventory records are kept in units only and average cost is calculated monthly at each month end. Calculate unit costs to the nearest cent and ending inventory to the nearest dollar.

1. First-in, first-out (FIFO)

2. Weighted average cost

b. Based on your results in part (a), and assuming that the average selling price per unit during May was $7.25, prepare partial income statements up to the ?gross profit on sales? line. Calculate the gross profit percentage under each inventory cost formula. Round your answers to one decimal place. Comment on your results.

c. Digging Deeper Assume the perpetual inventory record is kept in dollars, and costs are calculated at the time of each withdrawal. Recalculate the amounts under this revised assumption, rounding average unit costs to four decimal places. Would the ending inventory amounts under each of the two cost formulas above be the same? Explain.

Transcribed Image Text:

Received No. of Units 1,150 1,050 Balance Issued No. of Units No. of Units 1,150 2,200 1,500 2,100 1,600 2,300 1,200 2,500 1,700 3,200 1,900 Unit Cost Date 1 (opening balance) May $2.90 3.00 700 10 13 18 600 3.20 500 300 1,000 3.30 1,100 20 1,300 23 26 28 31 3.40 800 1,500 3.60 1,300