CHAPTER 6

Cookie Creations

(

Note:

This is a continuation of the Cookie Creations from Chapters 1 through 5.)

CC6

Natalie is busy establishing both divisions of her business (cookie classes and mixer

sales) and completing her business degree. 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). Assume that Natalie has decided to use a periodic

inventory system and now must choose a cost flow assumption for her mixer inventory.

The following transactions occur in February to May 2020.

Feb.

2

Natalie buys two deluxe mixers on account from Kzinski Supply Co. for $1,200

($600 each), FOB destination, terms n/30.

16

She sells one deluxe mixer for $1,150 cash.

25

She pays the amount owed to Kzinski.

Mar.

2

She buys one deluxe mixer on account from Kzinski Supply Co. for $618, FOB

destination, terms n/30.

30

Natalie sells two deluxe mixers for a total of $2,300 cash.

31

She pays the amount owed to Kzinski.

Apr.

1

She buys two deluxe mixers on account from Kzinski Supply Co. for $1,224 ($612

each), FOB destination, terms n/30.

13

She sells three deluxe mixers for a total of $3,450 cash.

30

Natalie pays the amounts owed to Kzinski.

May

4

She buys three deluxe mixers on account from Kzinski Supply Co. for $1,875

($625 each), FOB destination, terms n/30.

27

She sells one deluxe mixer for $1,150 cash.

Instructions

(a) Determine the cost of goods available for sale. Recall from Chapter 5 that at the end of

January, Cookie Creations had three mixers on hand at a cost of $545 each.

(b) Calculate (i) ending inventory, (ii) cost of goods sold, (iii) gross profit, and (iv) gross

profit rate under each of the following methods: LIFO, FIFO, and average cost