Question

Question: Amsterdam Company uses a periodic inventory system. For April, when the company sold 600 units, the following information is available.

Units Unit Cost Total Cost

April 1 inventory 250 \(10 \) 2,500

April 15 purchase 400 12 4,800

April 23 purchase 350 13 4,550

1,000 $11,850

Compute the April 30 inventory and the April cost of goods sold using the average-cost method.

Short answer

The ending inventory on April 30 was $5,175 and the cost of goods sold amounts to$6,675.

Step-by-step solution

Step-by-step-solutionStep1: Periodic inventory system

The periodic inventory system is a method of inspecting inventory at the end of the period. Thus under this method, instead of keeping track of inventory for each transaction, the inventories are inspected only at the end of the period. This is why it is called a periodic inventory system

Cost of goods available for sale and the average cost

$$\begin{gathered} \mathbf{Cost}\mathbf{}\mathbf{of}\mathbf{}\mathbf{goods}\mathbf{}\mathbf{available}\mathbf{}\mathbf{for}\mathbf{}\mathbf{sale}\mathbf{=}\mathbf{Opening}\mathbf{}\mathbf{Inventory}\mathbf{+}\mathbf{Total}\mathbf{}\mathbf{Purchases} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{2500}\mathbf{+}\mathbf{(}\mathbf{4800}\mathbf{+}\mathbf{4550}\mathbf{)} \\ \mathbf{=}\mathbf{\$}\mathbf{11}\mathbf{,}\mathbf{850} \\ \mathbf{Average}\mathbf{}\mathbf{cost}\mathbf{}\mathbf{per}\mathbf{}\mathbf{unit}\mathbf{=}\frac{\mathbf{Cost}\mathbf{}\mathbf{of}\mathbf{}\mathbf{goods}\mathbf{}\mathbf{available}\mathbf{}\mathbf{for}\mathbf{}\mathbf{sale}}{\mathbf{Total}\mathbf{}\mathbf{units}} \\ \mathbf{=}\frac{\mathbf{11850}}{\mathbf{1000}} \\ \mathbf{=}\mathbf{\$}\mathbf{11}\mathbf{.}\mathbf{85} \end{gathered}$$

Closing inventory

$$\begin{gathered} \mathbf{Closing}\mathbf{}\mathbf{}\mathbf{inventory}\mathbf{(}\mathbf{in}\mathbf{}\mathbf{units}\mathbf{)}\mathbf{=}\mathbf{Opening}\mathbf{}\mathbf{inventory}\mathbf{+}\mathbf{Total}\mathbf{}\mathbf{Purchases}\mathbf{-}\mathbf{Sales} \\ \mathbf{=}\mathbf{250}\mathbf{+}\mathbf{(}\mathbf{450}\mathbf{+}\mathbf{350}\mathbf{)}\mathbf{-}\mathbf{600} \\ \mathbf{=}\mathbf{450} \\ \mathbf{Closing}\mathbf{}\mathbf{inventory}\mathbf{\left(}\mathbf{value}\mathbf{\right)}\mathbf{=}\mathbf{Closing}\mathbf{}\mathbf{inventory}\mathbf{\left(}\mathbf{units}\mathbf{\right)}\mathbf{\times }\mathbf{Average}\mathbf{}\mathbf{cost}\mathbf{}\mathbf{per}\mathbf{}\mathbf{unit} \\ \mathbf{=}\mathbf{450}\mathbf{X}\mathbf{11}\mathbf{.}\mathbf{50} \\ \mathbf{=}\mathbf{\$}\mathbf{5}\mathbf{,}\mathbf{175} \end{gathered}$$

Cost of goods sold

$\begin{array}{rcl}\mathbf{Cost}\mathbf{}\mathbf{}\mathbf{of}\mathbf{}\mathbf{}\mathbf{goods}\mathbf{}\mathbf{sold}& \mathbf{=}& \mathbf{Cost}\mathbf{}\mathbf{of}\mathbf{}\mathbf{goods}\mathbf{}\mathbf{available}\mathbf{}\mathbf{for}\mathbf{}\mathbf{sale}\mathbf{-}\mathbf{Value}\mathbf{}\mathbf{}\mathbf{of}\mathbf{}\mathbf{}\mathbf{closing}\mathbf{}\mathbf{inventory}\\ & \mathbf{=}& \mathbf{11850}\mathbf{-}\mathbf{5175}\\ & \mathbf{=}& \mathbf{\$}\mathbf{6}\mathbf{,}\mathbf{675}\\ & & \end{array}$