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):
Date of purchase Units Item Cost per unit
April 5 3 Iroquois canoe $1,100
3 Chippewa canoe $1,400
3 Winnebago canoe $2,100
May 1 3 Iroquois kit $450
2 Chippewa kit $550
1 Winnebago kit $800
8 Paddle medium $45
6 Paddle large $75
June 2 2 Chippewa kit $550
1 Winnebago kit $800
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.
a. To find the cost of goods sold using the specific identification inventory method, we need to identify the specific units sold during the period.
From the information given, the beginning inventory on April 1 is:
Iroquois canoe - 1 canoe
Chippewa canoe - 2 canoes
Winnebago canoe - 0 canoes
Iroquois kit - 2 kits
Chippewa kit - 2 kits
Winnebago kit - 3 kits
Paddle medium - 6 paddles
Paddle large - 6 paddles
The ending inventory on June 30 is:
Iroquois canoe - 2 canoes
Chippewa canoe - 0 canoes
Winnebago canoe - 2 canoes
Iroquois kit - 1 kit
Chippewa kit - 1 kit
Winnebago kit - 1 kit
Paddle medium - 6 paddles
Paddle large - 4 paddles
To calculate the cost of goods sold using the specific identification method, we need to determine the cost of the specific units sold during the period.
Based on the units sold and the cost per unit, the cost of goods sold can be calculated as follows:
Cost of Iroquois canoes sold = (3 canoes - 2 canoes) * $1,100 = $1,100
Cost of Chippewa canoes sold = (3 canoes - 0 canoes) * $1,400 = $4,200
Cost of Winnebago canoes sold = (3 canoes - 2 canoes) * $2,100 = $2,100
Cost of Iroquois kits sold = (2 kits - 1 kit) * $450 = $450
Cost of Chippewa kits sold = (2 kits - 1 kit) * $550 = $550
Cost of Winnebago kits sold = (3 kits - 1 kit) * $800 = $1,600
Cost of paddle mediums sold = 0 (no change in inventory)
Cost of paddle larges sold = (6 paddles - 4 paddles) * $75 = $150
Total cost of goods sold = $1,100 + $4,200 + $2,100 + $450 + $550 + $1,600 + $150 = $10,150
Therefore, the cost of goods sold using the specific identification method is $10,150.
b. To find the cost of goods sold using the weighted-average inventory method, we need to calculate the weighted average cost per unit and then apply it to the units sold.
To calculate the weighted average cost per unit, we need to consider the total cost of units available for sale and the total number of units available for sale.
Total cost of units available for sale = (3 canoes * $1,100) + (3 canoes * $1,400) + (3 canoes * $2,100) + (3 kits * $450) + (2 kits * $550) + (1 kit * $800) + (8 paddles * $45) + (6 paddles * $75) + (2 kits * $550) + (1 kit * $800)
Total number of units available for sale = 3 canoes + 3 canoes + 3 canoes + 3 kits + 2 kits + 1 kit + 8 paddles + 6 paddles + 2 kits + 1 kit
Weighted average cost per unit = Total cost of units available for sale / Total number of units available for sale
Using the information above, calculate the weighted average cost per unit.
Once we have the weighted average cost per unit, we can calculate the cost of goods sold by applying it to the units sold during the period.
Total cost of goods sold using the weighted-average inventory method = Cost per unit * Units sold
Therefore, calculate the cost of goods sold using the weighted-average inventory method using the respective cost per unit and number of units sold.
c. To compute the beginning inventory on April 1, we need to subtract the cost of goods sold and the net sales from the ending inventory on April 30.
Beginning Inventory on April 1 = Ending Inventory on April 30 - Cost of Goods Sold - Net Sales
Given:
Ending Inventory on April 30 = $14,645
Net Sales = $8,085
Cost of Goods Sold can be calculated using either the specific identification or the weighted-average method (calculated in parts a and b).
Once the Beginning Inventory is calculated, we can compute the average inventory at the cost for April by adding the Beginning Inventory on April 1 to the Ending Inventory on April 30 and then dividing by 2.
Average Inventory at Cost for April = (Beginning Inventory on April 1 + Ending Inventory on April 30) / 2
Finally, to find the turnover rate at cost for April, we divide the Net Sales by the Average Inventory at Cost for April:
Turnover Rate at Cost for April = Net Sales / Average Inventory at Cost for April