Mgmt 200 Assignment Soln 2-25-11

Mgmt 200 Assignment Soln 2-25-11 - (c Sales revenue = 400...

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Management 200 – Introductory Financial Accounting– Spring 2011 Krannert School of Management - Purdue University Solutions to class assignment for February 25, 2011 Exercise 6-2 Requirement 1 (a) Date Transaction Number of units Unit cost Ending Inventory Oct. 6 Purchase 50 $38 $1,900 (b) Date Transaction Number of units Unit cost Cost of Goods Sold Jan. 1 Beginning inventory 40 $32 $ 1,280 Apr. 7 Purchase 120 34 4,080 Jul. 16 Purchase 190 37 7,030 Oct. 6 Purchase 50 38 1,900 400 a $14,290 a First 400 units purchased are assumed sold (c) Sales revenue = 400 units X $50 = $20,000 (d) Gross profit = Sales revenue − Cost of goods sold = $20,000 − $14,290 = $5,710 Requirement 2 (a) Date Transaction Number of units Unit cost Ending Inventory Jan. 1 Beginning Inventory 40 $32 $1,280 Apr. 7 Purchase 10 34 340 50 $1,620 (b) Date Transaction Number of units Unit cost Cost of Goods Sold Apr. 7 Purchase 110 $34 $ 3,740 Jul. 16 Purchase 190 37 7,030 Oct. 6 Purchase 100 38 3,800 400 a $14,570 a Last 400 units purchased are assumed sold
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Unformatted text preview: (c) Sales revenue = 400 units X $50 = $20,000 (d) Gross profit = Sales revenue − Cost of goods sold = $20,000 − $14,570 = $5,430 Requirement 3 Date Transaction Number of units Unit cost Total cost Jan. 1 Beginning Inventory 40 $32 $ 1,280 Apr. 7 Purchase 120 34 4,080 Jul. 16 Purchase 190 37 7,030 Oct. 6 Purchase 100 38 3,800 450 $16,190 Average cost = $16,190 / 450 units = $35.98 (rounded to the nearest penny). (a) Ending inventory = 50 units X $35.98 = $1,799 (b) Cost of goods sold = 400 units X $35.98 = 14,391 ($1 rounding error) (c) Sales revenue = 400 units X $50 = $20,000 (d) Gross profit = Sales revenue − Cost of goods sold = $20,000 − $14,391 = $5,609 Requirement 4 FIFO LIFO Average Gross Profit $5,710 $5,430 $5,609 FIFO results in higher profitability when inventory costs are rising....
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