Cookie Chronicle
Attached is a example from my book.
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), but the supplier cannot guarantee the invoice price. 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, 2006.
Feb. 2 Natalie buys two deluxe mixers on account from Kzinski Supply
Co. for $1,100 ($550 each), FOB destination, terms n/30.
16 She sells one deluxe mixer for $1,050 cash.
25 She pays the amount owed to Kzinski.
Mar. 2 She buys one deluxe mixer on account from Kzinski Supply Co. for
$567, FOB destination, terms n/30.
30 Natalie sells two deluxe mixers for a total of $2,100 cash.
31 She pays the amount owed to Kzinski.
Apr. 1 She buys two deluxe mixers on account from Kzinski Supply Co. for
$1,122 ($561 each), FOB destination, terms n/30.
13 She sells three deluxe mixers for a total of $3,150 cash.
30 Natalie pays the amounts owed to Kzinski.
May 4 She buys three deluxe mixers on account from Kzinski Supply Co.
for $1,720 ($573.33 each), FOB destination, terms n/30.
27 She sells one deluxe mixer for $1,050 cash.
Instructions
Prepare journal entries for each of the transactions.
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.
C. Natalie is thinking of getting a bank loan. If this is the only factor Natalie has to consider in choosing an inventory cost flow assumption, which cost flow assumption would you recommend that Natalie use? Why?
This question has the following supporting file(s):
- FIFO.xlsx
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Solution Summary
The solution explains inventory calculations for Cookie Chronicle.
$2.19 
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- Attached file(s)
- Cookie Chronicle.xls
Extracted Content from Question Files:
- FIFO.xlsx
The cost of goods available for sale is $6,450, as follows.
Inventory: 200 units @ $ 800
$4.00
Purchases:
10-Mar 500 units @ 2,250
$4.50
20-Mar 400 units @ 1,900
$4.75
30-Mar 300 units @ 1,500
$5.00
Total cost of goods available for sale $6,450
Under a periodic inventory system , the cost of goods sold under each co
FIFO Method
Ending inventory:
Date Units Unit Cost Total
Cost
30-Mar 300 $5.00 $1,500
20-Mar 200 4.75 950 $2,450
Cost of goods sold: $6,450-$2,450=$ 4,000
LIFO Method
Ending inventory:
Date Units Unit Cost Total
Cost
March
1 200 $4.00 $ 800
10-Mar 300 4.5 1,350 $2,150
Cost of goods sold: $6,450 - $ 2,150 = $4,300
Average Cost Method
Average unit cost: $6,450 รท 1,400 = $4.607
Ending Inventory: 500 X $4.607= $2,303.50
Cost of goods sold: $6,450-$2,303=$4,146.50
Illustration 6a-2 Perpetual System - FIFO
Date Purchases Sales Balance
1-Jan (100@ $10) $1,000
15-Apr (200@$11) $2200 (100@$10)
(200@$11) $3,200
Augst 23 (300@$12) $3600 (100@$10)
(200@$11)
(300@$12) $6,800
10-Sep (100@ $10)
(200@$11)
(250@$12)
$6,200
27-Nov (400@$13) $5,200 (50@$12)
(100@13) $5,800
The ending inventory in this situation is $5,800. The cost of goods sold is $
The results under FIFO in a perpetual system are the same as in a periodic system. See Illustration 6.5 on page 248. There, sim
is $6,200. Regardless of the system, the first costs in are the costs assigned to cost of goods
ds sold under each cost flow method is as follows.
ost of goods sold is $6,200 [(100 @ $10) + (200 @ $11) + (250 @ $12)].
6.5 on page 248. There, similarly, the ending inventory is $5,800 and cost of goods sold
ned to cost of goods sold.
