Simisa Inc. is a retailer operating in Devonshire. Simisa uses perpetual invento

Question

Simisa Inc. is a retailer operating in Devonshire. Simisa uses perpetual inventory method. Assume that all transactions are cash transactions. You are provided with the following information for Simisa Inc. for the month of March 2016. Date Description Qty Unit cost or selling price Mar 1 Beginning Inventory 50 $12 Mar 5 Purchase 100 14 Mar8 Sale 80 25 Mar 10 Sales Return 10 25 Mar 15 Purchase 30 18 Mar 16 Purchase Return 5 18 Mar 20 Sale 90 25 Mar 25 Purchase 10 20 ACT501 Semester 1, 2016 Page 4 Required: a) For each of the following inventory costing methods , prepare the perpetual inventory record to calculate i) cost of goods sold, ii) ending inventory & iii) gross profit. 1) LIFO 2) FIFO 3) Average cost b) Compare & explain the results for the three meth ods in your own words (For the purposes of the question, please ignore GS T

Explanation / Answer

Simisa Inc. All Amounts in $ a) Calculation of Cost of Goods Sold and Ending Inventory, Costing Method Wise Calculation of Gross Profits, Costing Method Wise FIFO FIFO Date Particulars Qty Rate per Amount Sales 4250 unit in $ $ COGS -2180 Gross Profit 2070 01/03/2016 Opening Inventory 50 12 600 05/03/2016 Purchases 100 14 1400 LIFO 08/03/2016 Cost of Goods Sold -50 12 -600 08/03/2016 Cost of Goods Sold -30 14 -420 Sales 4250 10/03/2016 Cost of Sales Return 10 12 120 COGS -2270 15/03/2016 Purchases 30 18 540 Gross Profit 1980 16/03/2016 Purchase Return -5 18 -90 20/03/2016 Cost of Goods Sold -10 12 -120 Weighted Average 20/03/2016 Cost of Goods Sold -70 14 -980 20/03/2016 Cost of Goods Sold -10 18 -180 Sales 4250 25/03/2016 Purchases 10 20 200 COGS -2233.33 31/03/2016 Closing Inventory 15 18 270 Gross Profit 2016.667 31/03/2016 Closing Inventory 10 20 200 Assuming that the inventory levels are maintained throughout the year, Cost of Goods Sold -160 13.625 -2180 FIFO gives the highest value of closing inventory, and lowest value of Cost of Goods Sold, since it works on the principle of "What comes in first, goes out first". LIFO Thus, in FIFO, price changes owing to fluctuating market conditions are not considered at all. Date Particulars Qty Rate per Amount Whereas, on the other hand, LIFO uses the principle of "What comes in last, goes out first". unit in $ $ Like in FIFO, the inventory quantities and volatile price conditions are not considered here. Hence, opening inventory tends to remain unutilised, and thus the value of the closing 01/03/2016 Opening Inventory 50 12 600 inventory is the lowest but the Cost of Goods Sold is the highest in this method of inventory valuation. 05/03/2016 Purchases 100 14 1400 08/03/2016 Cost of Goods Sold -80 14 -1120 Weighted Average is considered to be a mean method of accounting, since it considers the value of the 10/03/2016 Cost of Sales Return 10 14 140 inventory, and cost of goods sold, based on the average price, which is derived on the basis of the inventory 15/03/2016 Purchases 30 18 540 levels maintained, which can be increased or decreased due to purchases or sales, as the case may be. 16/03/2016 Purchase Return -5 18 -90 20/03/2016 Cost of Goods Sold -25 18 -450 20/03/2016 Cost of Goods Sold -30 14 -420 20/03/2016 Cost of Goods Sold -35 12 -420 25/03/2016 Purchases 10 20 200 31/03/2016 Closing Inventory 10 20 200 31/03/2016 Closing Inventory 15 12 180 Cost of Goods Sold -160 14.1875 -2270 Weighted Average Date Particulars Qty Rate per Amount unit in $ $ 01/03/2016 Opening Inventory 50 12 600 05/03/2016 Purchases 100 14 1400 150 13.33333 2000 08/03/2016 Cost of Goods Sold -80 13.33333 -1066.67 10/03/2016 Cost of Sales Return 10 13.33333 133.3333 15/03/2016 Purchases 30 18 540 16/03/2016 Purchase Return -5 18 -90 105 14.44444 1516.667 20/03/2016 Cost of Goods Sold -90 14.44444 -1300 25/03/2016 Purchases 10 20 200 31/03/2016 Closing Inventory 25 16.66667 416.6667 Cost of Goods Sold -160 13.95833 -2233.33

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