Inventory Flow Assumptions
Flat TV Uses a Perpetual Inventory System

question 86

Essay

Inventory flow assumptions
Flat TV uses a perpetual inventory system. Shown below are Flat TV's beginning inventory of a particular product and purchases during January:
$$\begin{array} { | l | l | r | r | r | } \hline & & \text { Quantity } & \text { Unit Cost (\$) } & \text { Total Cost (\$) } \\\hline 1 \text { Jan } & \text { Beginning irventory } & 6 & 1,950 & 11,700 \\\hline \text { 6 Jan} & \text { Purchases } & 12 & 2,250 & 27,000 \\\hline \text { 25 Jan} & \text { Purchases } & \underline { 12 } & 2,300 & \underline { 27,600 } \\\hline & \text { Total } & \underline { 30 } & & \underline { 66,300 } \\\hline\end{array}$$ On 23 January (prior to the purchase on 25 January), Flat TV sold 13 units of this product.
Determine the cost of goods sold relating to the sale on 23 January under each of the following flow assumptions. (Show your computations.)
(a) FIFO $__________________
(b) Weighted average cost (or moving average) $______________

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Definitions:

Variable Costs

Expenses that vary in direct relation to the amount of output or sales.

Fixed Costs

Expenses that do not change with the level of output or sales, such as rent, salaries, and insurance, remaining constant regardless of business activity levels.

Margin of Safety

The difference between actual or anticipated sales and the sales level at the break-even point, measured to assess the risk of not covering fixed costs.

Contribution Format

A method of income statement presentation where costs are separated into variable and fixed categories, emphasizing the contribution margin.