Jan.1
Beginning Inventory..300 units @ $3.00
Mar.5
Purchase..........… 900 units @ $4.00
Sept.3
Purchase...........… 1,000 units @ $5.00
Nov. 4
Purchase....… 500 units @ $7.00
During 2011, 1,000 units are sold at $10.00 each. Assume that the Periodic Invetory System is used.
I am asked to compute the Cost of goods available for sale on December 31, 2011.
My logic is:
300 x 3 = 900
900 x 4 = 3600
1000 x 5 = 5000
500 x 7 = 3500
900 + 3600 + 5000 + 3500 = 13000
however this is where i'm confused. Would the Ending Inventory and the Cost of Goods available for sale on december 31 be the same? So:
Since during the year they said they sold 1000 units at $10.00 each meaning 1000 x 10 = 10,000.
Would the Cost of Goods Available for Sale on December 31 be 3000 (which is also what ending inventory would be)? Or would the cost of goods available for sale be the 13,000?
To compute the Cost of Goods Available for Sale on December 31, 2011, you need to add up the costs of the beginning inventory and all purchases made throughout the year.
In this case, you have the following inventory transactions:
- Beginning Inventory: 300 units @ $3.00 ($900)
- Purchase on Mar. 5: 900 units @ $4.00 ($3,600)
- Purchase on Sept. 3: 1,000 units @ $5.00 ($5,000)
- Purchase on Nov. 4: 500 units @ $7.00 ($3,500)
To calculate the Cost of Goods Available for Sale, you add up the costs of each transaction:
$900 + $3,600 + $5,000 + $3,500 = $12,000
Therefore, the Cost of Goods Available for Sale on December 31, 2011, is $12,000.
The Ending Inventory is the value of the remaining inventory on December 31, 2011. In this case, since the inventory system used is periodic, you need to determine the number of units remaining and their cost.
You mention that 1,000 units were sold at $10.00 each. This means that 1,000 units were taken out of the available inventory, leaving some units remaining.
To determine the Ending Inventory, you need to figure out how many units are left and their total cost. Since the periodic inventory system does not track individual units, you typically make assumptions about the cost of the remaining units based on the last purchases made.
In this case, let's assume that the units remaining are from the last purchase made on Nov. 4 (500 units @ $7.00). Therefore, the Ending Inventory value would be:
500 units x $7.00 = $3,500
Hence, the Ending Inventory on December 31, 2011, is $3,500.
To summarize:
- Cost of Goods Available for Sale on December 31, 2011: $12,000
- Ending Inventory on December 31, 2011: $3,500