Inventory Management

Math Practice

Prepared By:

Dr. S. M. Khaled Hossain

Assistant Professor (Accounting)
Army Institute of Business Administration (AIBA)
(Affiliated Institute of Bangladesh University of Professionals- BUP)
Savar Cantonment, Dhaka-1344.
Email: [email protected]

©Dr. S. M. Khaled Hossain Page | 1

Exercise: 01
This information is available for Santo’s Photo Corporation for 2009, 2010, and 2011.

2009 2010 2011

Beginning inventory $ 100,000 $ 300,000 $ 400,000
Ending inventory 300,000 400,000 480,000
Cost of goods sold 900,000 1,120,000 1,300,000
Sales 1,200,000 1,600,000 1,900,000
Instructions:
a) Calculate the inventory turnover, days in inventory, and gross profit rate for Santo’s Photo
Corporation for 2009, 2010, and 2011. Comment on any trends.

Exercise: 02
The cost of goods sold computations for O’Brien Company and Weinberg Company
are shown below.
O’Brien Company Weinberg Company
Beginning inventory $ 45,000 $ 71,000
Cost of goods purchased 200,000 290,000
Cost of goods available for sale 245,000 361,000
Ending inventory 55,000 69,000
Cost of goods sold $190,000 $292,000

Instructions:
a) Compute inventory turnover and days in inventory for each company.
b) Which company moves its inventory more quickly?

Exercise: 03
Doc Gibbs Company reported the following information for November and December 2010.
November December
Cost of goods purchased $500,000 $ 610,000
Inventory, beginning-of-month 100,000 120,000
Inventory, end-of-month 120,000 ?
Sales 800,000 1,000,000
Doc Gibbs’s ending inventory at December 31 was destroyed in a fire.
Instructions:
a) Compute the gross profit rate for November.
b) Using the gross profit rate for November, determine the estimated cost of inventory lost in the
fire.

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Exercise: 04
The inventory of Faber Company was destroyed by fire on March 1. From an examination of the
accounting records, the following data for the first 2 months of the year are obtained: Sales
$51,000, Sales Returns and Allowances $1,000, Purchases $31,200, Freight-in $1,200, and
Purchase Returns and Allowances $1,400.
Instructions:
Determine the merchandise lost by fire, assuming:
a) A beginning inventory of $20,000 and a gross profit rate of 40% on net sales.
b) A beginning inventory of $30,000 and a gross profit rate of 30% on net sales.

Exercise: 05
Quayle Shoe Store uses the retail inventory method for its two departments, Women’s Shoes and
Men’s Shoes.The following information for each department is obtained.
Women’s Men’s
Item Department Department
Beginning inventory at cost $ 32,000 $ 45,000
Cost of goods purchased at cost 148,000 136,300
Net sales 178,000 185,000
Beginning inventory at retail 46,000 60,000
Cost of goods purchased at retail 179,000 185,000
Instructions:
a) Compute the estimated cost of the ending inventory for each department under the retail
inventory method.

Exercise: 06
Ballas Co. uses a periodic inventory system. Its records show the following for the month of May,
in which 68 units were sold.
Units Unit Cost Total Cost
May 1 Inventory 30 $8 $240
15 Purchases 25 11 275
24 Purchases 35 12 420
Totals 90 $935
Instructions
a) Compute the ending inventory at May 31 and cost of goods sold using the FIFO and LIFO
methods. Prove the amount allocated to cost of goods sold under each method.

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Exercise: 07
Moath Company reports the following for the month of June.
Units Unit Cost Total Cost
June 1 Inventory 200 $5 $1,000
12 Purchase 400 6 2,400
23 Purchase 300 7 2,100
30 Inventory 100
Instructions:
a) Compute the cost of the ending inventory and the cost of goods sold under (1) FIFO and (2)
LIFO.
b) Which costing method gives the higher ending inventory? Why?
c) Which method results in the higher cost of goods sold? Why?

Exercise: 8
Shawn Company had 100 units in beginning inventory at a total cost of $10,000. The company
purchased 200 units at a total cost of $26,000. At the end of the year, Shawn had 75 units in ending
inventory.
Instructions:
a) Compute the cost of the ending inventory and the cost of goods sold under (1) FIFO, (2) LIFO,
and (3) average-cost.
b) Which cost flow method would result in the highest net income?
c) Which cost flow method would result in inventories approximating current cost in the balance
sheet?
d) Which cost flow method would result in Shawn paying the least taxes in the first year?

Exercise: 9
Elliott’s Hardware reported cost of goods sold as follows.
2016 2017
Beginning inventory $ 20,000 $ 30,000
Cost of goods purchased 150,000 175,000
Cost of goods available for sale 170,000 205,000
Ending inventory 30,000 35,000
Cost of goods sold 140,000 170,000
Elliott’s made two errors: (1) 2016 ending inventory was overstated $3,000, and (2) 2017 ending
inventory was understated $5,000.
Instructions:
a) Compute the correct cost of goods sold for each year.

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Exercise:10
Gerald D. Englehart Company has the following inventory, purchases, and sales data for the month
of March.
Inventory: March 1 200 units @ $4.00
Purchases:
March 10 500 units @ $4.50
March 20 400 units @ $4.75
March 30 300 units @ $5.00
Sales:
March 15 500 units
March 25 400 units
The physical inventory count on March 31 shows 500 units on hand.
Instructions:
a) Calculate (i) ending inventory, (ii) cost of goods sold, (iii) gross profit, and (iv) gross profit
rate under (1) FIFO (2) LIFO (3) Simple Average, and (4) Weighted Average methods.
b) Compare results for the three cost flow assumptions.

Exercise: 11
You are provided with the following information for Pavey Inc. for the month ended October 31,
2010. Pavey uses a periodic method for inventory.
Unit Cost or
Date Description Units Selling Price
October 1 Beginning inventory 60 $25
October 9 Purchase 120 26
October 11 Sale 100 35
October 17 Purchase 70 27
October 22 Sale 60 40
October 25 Purchase 80 28
October 29 Sale 110 40

Instructions
a) Calculate (i) ending inventory, (ii) cost of goods sold, (iii) gross profit, and (iv) gross profit
rate under (1) FIFO (2) LIFO (3) Simple Average, and (4) Weighted Average methods.
b) Compare results for the three cost flow assumptions.

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Exercise: 12
Vasquez Ltd. is a retailer operating in Edmonton, Alberta. Vasquez uses the perpetual inventory
method. All sales returns from customers result in the goods being returned to inventory; the
inventory is not damaged. Assume that there are no credit transactions; all amounts are settled in
cash. You are provided with the following information for Vasquez Ltd. for the month of January
2010.
Unit Cost or
Date Description Quantity Selling Price
December 31 Ending inventory 150 $17
January 2 Purchase 100 21
January 6 Sale 150 40
January 9 Sale return 10 40
January 9 Purchase 75 24
January 10 Purchase return 15 24
January 10 Sale 50 45
January 23 Purchase 100 28
January 30 Sale 110 50
Instructions
a) Calculate (i) ending inventory, (ii) cost of goods sold, (iii) gross profit, and (iv) gross profit
rate under (1) FIFO (2) LIFO (3) Simple Average, and (4) Weighted Average methods.
b) Compare results for the three cost flow assumptions.

Exercise: 13
You are provided with the following information for Web Inc. for the month ended June 30, 2010.
Web uses the periodic method for inventory.
Unit Cost or
Date Description Quantity Selling Price
June 1 Beginning inventory 40 $40
June 4 Purchase 135 44
June 10 Sale 110 70
June 11 Sale return 15 70
June 18 Purchase 55 46
June 18 Purchase return 10 46
June 25 Sale 65 75
June 28 Purchase 30 50
Instructions:
a) Calculate (i) ending inventory, (ii) cost of goods sold, (iii) gross profit, and (iv) gross profit
rate under each of the following methods. (1) LIFO. (2) FIFO. (3) Simple average (4) Weighted
average.
b) Compare results for the three cost flow assumptions.

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Exercise: 14
Hector Inc. is a retailer operating in British Columbia. Hector uses the perpetual inventory method.
All sales returns from customers result in the goods being returned to inventory; the inventory is
not damaged. Assume that there are no credit transactions; all amounts are settled in cash.You are
provided with the following information for Hector Inc. for the month of
January 2010.
Unit Cost or
Date Description Quantity Selling Price
January 1 Beginning inventory 100 $15
January 5 Purchase 150 18
January 8 Sale 110 28
January 10 Sale return 10 28
January 15 Purchase 55 20
January 16 Purchase return 5 20
January 20 Sale 80 32
January 25 Purchase 30 22
Instructions:
a) For each of the following cost flow assumptions, calculate (i) cost of goods sold, (ii) ending
inventory, and (iii) gross profit (iv) Gross profit rates under (1) LIFO. (2) FIFO. (3) Simple
average (4) Weighted average methods.
b) Compare results for the three cost flow assumptions.

Exercise: 15
Elsa’s Boards sells a snowboard, Xpert, that is popular with snowboard enthusiasts. Information
relating to Elsa’s purchases of Xpert snowboards during September is shown below. During the
same month, 121 Xpert snowboards were sold. Elsa’s uses a periodic inventory system.
Date Explanation Units Unit Cost Total Cost
Sept. 1 Inventory 26 $ 97 $ 2,522
Sept. 12 Purchases 45 102 4,590
Sept. 19 Purchases 20 104 2,080
Sept. 26 Purchases 50 105 5,250
Totals 141 $14,442
Instructions:
a) Compute the ending inventory at September 30 and cost of goods sold using the FIFO and
LIFO methods. Prove the amount allocated to cost of goods sold under each method.
b) For both FIFO and LIFO, calculate the sum of ending inventory and cost of goods sold. What
do you notice about the answers you found for each method?

©Dr. S. M. Khaled Hossain Page | 7

Exercise: 16
This information is available for Abdullah’s Photo Corporation for 2015, 2016, and
2017.
2015 2016 2017
Beginning inventory $ 100,000 $ 300,000 $ 400,000
Ending inventory 300,000 400,000 480,000
Cost of goods sold 900,000 1,152,000 1,300,000
Sales revenue 1,200,000 1,600,000 1,900,000
Instructions:
a) Calculate inventory turnover, days in inventory, and gross profit rate for Abdullah’s Photo
Corporation for 2015, 2016, and 2017. Comment on any trends.

Exercise: 17
The cost of goods sold computations for Sooner Company and Later Company are shown below.
Sooner Company Later Company
Beginning inventory $ 45,000 $ 71,000
Cost of goods purchased 200,000 290,000
Cost of goods available for sale 245,000 361,000
Ending inventory 55,000 69,000
Cost of goods sold 190,000 292,000

Instructions:
(a) Compute inventory turnover and days in inventory for each company.
(b) Which company moves its inventory more quickly?

Exercise: 18
You are provided with the following information for Koetteritz Inc. for the month ended June 30,
2017. Koetteritz uses the periodic method for inventory.
Unit Cost or
Date Description Quantity Selling Price
June 1 Beginning inventory 40 $40
June 4 Purchase 135 43
June 10 Sale 110 70
June 11 Sale return 15 70
June 18 Purchase 55 46
June 18 Purchase return 10 46
June 25 Sale 65 76
June 28 Purchase 35 50
Instructions:
(a) Calculate (i) ending inventory, (ii) cost of goods sold, (iii) gross profit, and (iv) gross
profit rate under each of the following methods. (1) LIFO. (2) FIFO. (3) Average-cost (4)
Weighted Average cost methods.

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(b) Compare results for the three cost flow assumptions.

Exercise: 19
Dempsey Inc. is a retailer operating in British Columbia. Dempsey uses the perpetual inventory
method. All sales returns from customers result in the goods being returned to inventory; the
inventory is not damaged. Assume that there are no credit transactions; all amounts are settled in
cash. You are provided with the following information for Dempsey Inc. for the month of January
2017.

Unit Cost or
Date Description Quantity Selling Price
January 1 Beginning inventory 100 $15
January 5 Purchase 140 18
January 8 Sale 110 28
January 10 Sale return 10 28
January 15 Purchase 55 20
January 16 Purchase return 5 20
January 20 Sale 90 32
January 25 Purchase 20 22

Instructions:
a) For each of the following cost flow assumptions, calculate (i) cost of goods sold, (ii) ending
inventory, and (iii) gross profit. (1) LIFO. (2) FIFO. (3) Simple-average cost. (3) Moving-
average cost methods.
b) Compare results for the three cost flow assumptions.

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