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?

Attachments

Solution Summary

The solution explains inventory calculations for Cookie Chronicle.