In the tradition of their Native American ancestors, Decorah Custom Canoes specializes in creating handcrafted canoes using the finest natural materials. Whether they are from birch bark or cedar, all canoes are custom-built from native wood. Each piece is a work of art, and normal construction time varies from one to two months. Once completed, the canoes are purchased by and sold through a retail outlet under the same name. Only three canoes are offered, the Iroquois, Chippewa, and Winnebago, which cost $1,100,$1,400, and $2,100, respectively. Each canoe also comes as a kit and costs $450, $550, and $800 respectively. Custom paddles are also available and cost $45 and $75, for medium and large sizes. The beginning on April 1 is as follows: Iroquois-1canoe/2 kits Chippewa-2 canoes/2 kits; Winnebago-0 canoes/3 kits; and paddles-6 medium/6 large. The ending inventory on June 30 is as follows: Iroquois-2 canoes/1 kit; Chippewa-0 canoes/1 kit; Winnebago-2 canoes/1 kit; and paddles-6 medium/4 large. The following information is a summary of inventory purchased by the retail outlet during the three months(April through June):

Question

In the tradition of their Native American ancestors, Decorah Custom Canoes specializes in creating handcrafted canoes using the finest natural materials. Whether they are from birch bark or cedar, all canoes are custom-built from native wood. Each piece is a work of art, and normal construction time varies from one to two months. Once completed, the canoes are purchased by and sold through a retail outlet under the same name. Only three canoes are offered, the Iroquois, Chippewa, and Winnebago, which cost $1,100,$1,400, and $2,100, respectively. Each canoe also comes as a kit and costs $450, $550, and $800 respectively. Custom paddles are also available and cost $45 and $75, for medium and large sizes. The beginning on April 1 is as follows: Iroquois-1canoe/2 kits Chippewa-2 canoes/2 kits; Winnebago-0 canoes/3 kits; and paddles-6 medium/6 large. The ending inventory on June 30 is as follows: Iroquois-2 canoes/1 kit; Chippewa-0 canoes/1 kit; Winnebago-2 canoes/1 kit; and paddles-6 medium/4 large. The following information is a summary of inventory purchased by the retail outlet during the three months(April through June):

a. Find the cost of goods sold using the specific identification inventory method.
b. Find the cost of goods sold using the weighted-average inventory method.
c. Decorah Custom Canoes had net sales of $8,085 at cost for the month of April, and the ending inventory on April 30 was $14,645. Compute the beginning inventory on April 1 (Hint: based on what is listed in the case), and then find the average inventory at cost the turnover rate at cost for April.

Answer 1

a. To calculate the cost of goods sold using the specific identification inventory method, we need to determine the cost of each item sold based on their specific purchase cost.

For the Iroquois canoes:
- 1 canoe is sold, which cost $1,100. So the cost of goods sold for Iroquois canoes is $1,100.

For the Chippewa canoes:
- 2 canoes are sold, which cost $1,400 each. So the cost of goods sold for Chippewa canoes is 2 x $1,400 = $2,800.

For the Winnebago canoes:
- None of the Winnebago canoes are sold.

For the canoe kits:
- 2 kits for the Iroquois canoes are sold, which cost $450 each. So the cost of goods sold for Iroquois canoe kits is 2 x $450 = $900.
- 2 kits for the Chippewa canoes are sold, which cost $550 each. So the cost of goods sold for Chippewa canoe kits is 2 x $550 = $1,100.
- 1 kit for the Winnebago canoes is sold, which cost $800. So the cost of goods sold for Winnebago canoe kits is $800.

For the paddles:
- None of the paddles are sold.

Adding up all the costs of sold items, the cost of goods sold using the specific identification inventory method is:
$1,100 (Iroquois canoes) + $2,800 (Chippewa canoes) + $900 (Iroquois canoe kits) + $1,100 (Chippewa canoe kits) + $800 (Winnebago canoe kits) = $6,700.

b. To calculate the cost of goods sold using the weighted-average inventory method, we need to calculate the average cost per unit for each item category.

For the canoes:
- (Beginning inventory + Purchases) / (Beginning quantity + Quantity purchased)

For the canoe kits:
- (Beginning inventory + Purchases) / (Beginning quantity + Quantity purchased)

For the paddles:
- (Beginning inventory + Purchases) / (Beginning quantity + Quantity purchased)

First, let's calculate the average cost per unit for the canoes category:

Iroquois canoes:
- (0 x $1,100) + (1 x $1,100) / (0 + 1) = $1,100

Chippewa canoes:
- (0 x $1,400) + (2 x $1,400) / (0 + 2) = $1,400

Winnebago canoes:
- (0 x $2,100) + (2 x $2,100) / (0 + 2) = $2,100

Now let's calculate the average cost per unit for the canoe kits category:

Iroquois canoe kits:
- (2 x $450) + (2 x $450) / (2 + 2) = $450

Chippewa canoe kits:
- (2 x $550) + (2 x $550) / (2 + 2) = $550

Winnebago canoe kits:
- (3 x $800) + (1 x $800) / (3 + 1) = $800

For the paddles category, since there were no units sold, the average cost per unit remains the same as the beginning inventory:

Medium paddles: $45
Large paddles: $75

Now, let's calculate the cost of goods sold using the weighted-average inventory method:

For the canoes:
- Iroquois canoes: 2 x $1,100 = $2,200
- Chippewa canoes: 0 x $1,400 = $0
- Winnebago canoes: 0 x $2,100 = $0

For the canoe kits:
- Iroquois canoe kits: 1 x $450 = $450
- Chippewa canoe kits: 1 x $550 = $550
- Winnebago canoe kits: 1 x $800 = $800

For the paddles:
- Medium paddles: 0 x $45 = $0
- Large paddles: 0 x $75 = $0

Adding up all the costs of sold items, the cost of goods sold using the weighted-average inventory method is:
$2,200 (Iroquois canoes) + $450 (Iroquois canoe kits) + $550 (Chippewa canoe kits) + $800 (Winnebago canoe kits) = $4,000.

c. To calculate the beginning inventory on April 1, we need to subtract the cost of goods sold and the ending inventory on April 30 from the net sales at cost.

Net sales at cost: $8,085
Ending inventory on April 30: $14,645
Cost of goods sold (April): $8,085 - $14,645 = -$6,560 (negative because the ending inventory is higher than the net sales)

Since the cost of goods sold is negative, it means there was an error or omission in the information provided. Therefore, we cannot accurately compute the beginning inventory on April 1 or the average inventory at cost turnover rate for April.