Question 1 (c)

Closing inventory, cost of goods sold and gross profit: FIFO and weighted average

6 marks

Time to write
About 12 minutes

From an older CBCS paper

Question

Question 1 (c) · 6 marks

According to FIFO and the Weighted Average Method, calculate on March 31, 2017 the value of closing inventory, the Cost Of Goods Sold and the Gross Profit: 6

March

01Stock in hand600 units @ ₹ 10 per unit
07Purchases9,000 units @ ₹ 12 per unit
10Sold7,200 units @ ₹15 per unit
12Sold1,440 units @ ₹ 18 per unit
15Purchased6,000 units @ ₹ 13 per units
25Sold4,200 units @ ₹ 23 per unit
30Purchase returns600 units (from the goods purchased on March 15)

Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.

Before you write

Read off the question and its marks

12 minfor 6 marks

Read from the question

  • calculateFormula first, then the working, then the answer with its unit (₹, %, units).

What the paper leaves open

Weighted average is read as the perpetual (moving) weighted average, recalculated after each purchase; the purchase return comes out of the 15th March lot at its cost. The answer states this and shows the periodic weighted average as the other reading.

Write it in this order

  1. Read the data; note exactly what is asked 1 min
  2. 1 Sales and units in hand 1 mark 2 min
  3. 2 FIFO: closing inventory, cost of goods sold, gross profit 2½ marks 4 min
  4. 3 Weighted average: closing inventory, cost of goods sold, gross profit 2½ marks 4 min
  5. Check: arithmetic, units (₹, %), final answer underlined 1 min

Try it first. About 12 minutes for 6 marks. Write it out, then open the solution.

Solution

Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.

Sales

DateUnitsPrice (₹)Sales (₹)
10 March7,200151,08,000
12 March1,4401825,920
25 March4,2002396,600
Total12,8402,30,520

Units in hand at 31 March: 600 + 9,000 − 7,200 − 1,440 + 6,000 − 4,200 − 600 = 2,160. The purchase return of 600 units leaves the 15 March lot at ₹13 (paper note).

(a) FIFO

Under FIFO the earliest costs are issued first; perpetual and periodic FIFO give the same result.

DateIssue / receiptCost of goods sold (₹)Balance in hand
10 March600 @ 10 + 6,600 @ 1285,2002,400 @ 12
12 March1,440 @ 1217,280960 @ 12
15 Marchreceived 6,000 @ 13960 @ 12; 6,000 @ 13
25 March960 @ 12 + 3,240 @ 1353,6402,760 @ 13
30 Marchreturned 600 @ 132,160 @ 13
  • Closing inventory = 2,160 × 13 = ₹28,080
  • Cost of goods sold = 85,200 + 17,280 + 53,640 = ₹1,56,120
  • Gross profit = 2,30,520 − 1,56,120 = ₹74,400

(b) Weighted average (perpetual)

The average is recalculated as each new lot is received (paper note).

DateReceipt / issueUnits in handValue (₹)Average (₹)Cost of issue (₹)
1 MarchOpening6006,00010.00
7 MarchPurchase 9,000 @ 129,6001,14,00011.875
10 MarchIssue 7,2002,40028,50011.87585,500
12 MarchIssue 1,44096011,40011.87517,100
15 MarchPurchase 6,000 @ 136,96089,40012.8448
25 MarchIssue 4,2002,76035,451.7212.844853,948.28
30 MarchReturn 600 @ 132,16027,651.7212.8017
Cost of goods sold1,56,548.28
  • Closing inventory = ₹27,651.72
  • Cost of goods sold = ₹1,56,548.28
  • Gross profit = 2,30,520 − 1,56,548.28 = ₹73,971.72

Check. Opening 6,000 + net purchases (1,08,000 + 78,000 − 7,800 = 1,78,200) = 1,84,200 = cost of goods sold + closing inventory under both methods.

The other reading (periodic weighted average). AS 2 allows the average to be calculated on a periodic basis: 1,84,200 ÷ 15,000 units = ₹12.28; closing inventory 2,160 × 12.28 = ₹26,524.80; cost of goods sold ₹1,57,675.20; gross profit ₹72,844.80.

Where the 6 marks sit

#ComponentMarks
1Sales and units in hand1
2FIFO: closing inventory, cost of goods sold, gross profit2.5
3Weighted average: closing inventory, cost of goods sold, gross profit2.5
Total6
Keyboard: ← → previous and next question, / search

Report a problemopens an email to admin@getkunji.com with the question ID1201-Q1calready filled in.