Question

salt and mineral (sam) began 2024 with 360 units of its one product. these units were purchased near the end of 2023 for $20 each. during the month of january, 180 units were purchased on january 8 for $23 each and another 360 units were purchased on january 19 for $25 each. sales of 170 units and 270 units were made on january 10 and january 25, respectively. there were 460 units on hand at the end of the month. sam uses a perpetual inventory system.

Answer 1

The question pertains to calculating the cost of goods sold and adjusting the inventory balance for Salt and Mineral (SAM) using a perpetual inventory system. A perpetual system constantly updates inventory records with each transaction, and the amounts spent are determined by multiplying quantities by the associated prices.

Step-by-step explanation:

The student's question involves calculating the inventory turnover and cost of goods sold (COGS) for Salt and Mineral (SAM) using a perpetual inventory system. We will consider the various purchases made for units at different prices and the units sold during January. A perpetual inventory system tracks inventory purchases and sales continuously with updates to accounts after each transaction. To calculate the amount spent on inventory or COGS, we multiply the quantity of each item by its price and add these amounts to get the total.

For example, if a list of products showed purchases at prices of $3.00, $3.20, $3.10, and $3.50 and the corresponding amounts spent were $60.00, $64.00, $62.00, and $70.00, we'd be observing an inventory with varying purchase costs. To determine the COGS or total quantity spent over a year, every transaction would need to be accounted for, which, in a real-world scenario, might result in complex figures such as $17,147.51 or $27,654.92.

COGS and Inventory Example:

• Beginning inventory: 360 units x $20 = $7,200
• Purchase on January 8: 180 units x $23 = $4,140
• Purchase on January 19: 360 units x $25 = $9,000
• Sales: 170 units and 270 units (to calculate COGS, we would apply FIFO, LIFO, or weighted average, based on the company's accounting policy)
• Ending inventory: 460 units needs to be valued at the most recent purchase price for a perpetual system unless earlier layers are still available.

Answer 2

Using the FIFO method, the ending inventory for January is $10,090, and the cost of goods sold for January is $10,250.

How to solve

To calculate the ending inventory and cost of goods sold (COGS) for January using the FIFO (First-In, First-Out) method:

Calculate the cost of goods available for sale:

Cost of initial inventory (360 units x $20) = $7,200

Cost of units purchased on January 8 (180 units x $23) = $4,140

Cost of units purchased on January 19 (360 units x $25) = $9,000

Total cost of goods available for sale = $7,200 + $4,140 + $9,000 = $20,340

Calculate the cost of goods sold:

Cost of goods sold = Cost of units sold during January

Cost of units sold on January 10 (170 units sold): FIFO method assumes the first units purchased are the first ones sold.

Cost = 170 units x $20 = $3,400

Cost of units sold on January 25 (270 units sold):

Remaining units from January 8 purchase (10 units) + Remaining units from January 19 purchase (260 units) = 270 units

Cost = 10 units x $23 + 260 units x $25 = $6,850

Total cost of goods sold = $3,400 + $6,850 = $10,250

Calculate the ending inventory:

Ending inventory = Cost of goods available for sale - Cost of goods sold

Ending inventory = $20,340 - $10,250 = $10,090

Therefore, using the FIFO method, the ending inventory for January is $10,090, and the cost of goods sold for January is $10,250.

The Complete Question

salt and mineral (sam) began 2024 with 360 units of its one product. these units were purchased near the end of 2023 for $20 each. during the month of january, 180 units were purchased on january 8 for $23 each and another 360 units were purchased on january 19 for $25 each. sales of 170 units and 270 units were made on january 10 and january 25, respectively. there were 460 units on hand at the end of the month. sam uses a perpetual inventory system.

calculate ending inventory and cost of goods sold for January using FIFO.