Deitz J.E., Southam J.L. Contemporary Business Mathematics for Colleges
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354 Part 5 Business Applications
THE BOTTOM LINE
Summary of chapter learning objectives:
Learning Objective
17.1
Account for inventory by inventory sheets and reports
from a perpetual inventory system.
Example
1. Compute the balance on hand after each transaction:
Date
Units In Units Out Balance on Hand
12/01 34,768
12/17 7,732
12/19 16,500
12/20 9,700
12/31 12,030
Answers: 1. 42,500; 26,000; 35,700; 23,670 2. Average cost, $915; FIFO, $900; LIFO, $920
3. $5,550; $1,620; $5,070; $11,025; $880; $24,145
17.2
Compute inventory value by the average cost, LIFO,
and FIFO methods.
2. From the data shown, compute the ending inventory by the average
cost, FIFO, and LIFO methods for Redwood Stove Company’s stove
part #717. The ending inventory, by physical count, was 300.
Sto
ve Part #717
Units Ending
Date In Cost Extension Inventory Value:
1/12 200 $3.00 $600
1/14 300 3.20 960 Average cost:
1/15 500 3.00 1,500 FIFO:
1/17 200 3.10 620 LIFO:
1/18
400 3.00 1,200
Total 1,600 $4,880
17.3
Compute inventory by using the lower of cost or market
value.
3. Compute Redwood Stove Company’s inventory value at the lower of
cost or market value.
Description Quantity Cost Market Extension
Stoves 20 $277.50 $350.50
Piping 60 34.50 27.00
Hearths 65 78.00 78.00
Screens 105 105.00 125.00
Tool Sets 16 65.50 55.00
Total
THE BOTTOM LINE
Chapter 17 Inventory and Turnover 355
Summary of chapter learning objectives:
Learning Objective
17.4
Estimate inventory by using cost of goods sold.
Example
4. Redwood Stove Company has a markup of 50% of retail. Last year it
had total sales of $400,000. It had a beginning inventory of $150,000
based on cost. It purchased merchandise for $180,000 during the
year. Compute the ending inventory at cost.
17.5
Compute inventory turnover.
5. Two years ago Redwood Stove Company used a markup of 65% of
cost. That year’s data are shown. Compute ending inventory, average
inventory, and inventory turnover at retail.
Net sales $800,000 Purchases (cost) $600,000
Beginning 300,000 Inventory—retail 440,000
inventory—retail (June 30)
Answers: 4. Inventory $130,000 5. Ending inventory at retail, $490,000; average inventory, $410,000; turnover, 1.95
SELF-CHECK
Review Problems for Chapter 17
356 Part 5 Business Applications
1 The D&D Company has 45 units on hand January 1. During the month, units in total 320 and units out total
285. What is the balance on hand January 31?
2 According to physical count, Dawson Lumber had 3,250 units in inventory March 31. Dawson Lumber’s be-
ginning inventory and purchases for the first quarter were as follows:
Jan. 1 Beginning Inventory 2,500 units @ $25.00
Jan. 15 Purchased 5,000 units @ $27.50
Feb. 5 Purchased 6,000 units @ $26.25
Mar. 10 Purchased 3,000 units @ $27.00
Calculate the value of the inventory March 31 and cost of goods sold for the quarter based on the average,
FIFO, and LIFO costing methods.
Inventory Value Cost of Goods Sold
a. Average cost:
b. FIFO cost:
c. LIFO cost:
3 Lansky Company’s inventory January 1 was valued at $41,000. During the first quarter, $365,000 of goods
were purchased and sales totaled $550,000. Estimate the inventory March 31 if Lansky’s markup is 40%
based on selling price.
4 Compute the average inventory, cost of goods sold, and turnover based on cost using the following data.
Kelly Pet Supplies takes inventory every 6 months and had inventory of $35,000 on January 1, $42,600 on
June 30, and $38,200 on December 31. Kelly’s purchased goods totaling $275,000 during the year and had
sales of $390,000.
a. Average inventory:
b. Cost of goods sold:
c. Turnover:
Answers to the Self-Check can be found in Appendix B at the back of the text.
Chapter 17 Inventory and Turnover 357
Assignment 17.1: Inventory Cost
Name
Date Score
A (40 points) Compute the extensions and totals. (1 point for each correct answer)
1. The inventory of Michelle’s Clock Shop shows the following items, at both cost and market prices.
Determine the total value of the inventory at the lower of cost or market price for each item.
Extension
UnitUnit at Lower
Cost Market of Cost
Description Quantity Price Price or Market
Quartz clock and pen set 20 $36.00 $34.80
Travel alarm clock 35 15.60 19.20
Ultrasonic travel clock 24 23.00 23.70
Digital alarm clock 42 19.80 18.60
AM/FM clock radio 60 21.00 21.00
Digital clock radio 12 54.00 57.50
Total
2. A retail furniture dealer counted the following goods in inventory on December 31. An accountant
recommended that the inventory items be valued at the lower of cost or market price. Compute the
total value of the inventory based on the lower of cost or market price.
Inventory
UnitUnit Value at Lower
Cost Extension Market Extension of Cost
Article Quantity Price at CostPrice at Market or Market
Armchairs, wood 24 $60.00 $ 68.50
Armchairs, tapestry 6 85.00 105.00
Armchairs, Windsor 12 90.00 85.00
Beds, bunk 8 85.00 75.00
Bedroom suites 3 297.50 410.00
Tables, coffee 30 63.00 62.00
Chairs, kitchen 24 23.00 32.00
Dining tables 8 117.40 95.70
Dining suites 5 288.80 395.00
Sofa sets 9 330.00 325.00
Total
Score for A (40)
$12,009.10$13,417.60$12,397.70
$2,925.00$2,925.00$2,970.00
$1,444.00$1,975.00$1,444.00
$765.60$765.60$939.20
$552.00$768.00$552.00
$1,860.00$1,860.00$1,890.00
$892.50$1,230.00$892.50
$600.00$600.00$680.00
$1,020.00$1,020.00$1,080.00
$510.00$630.00$510.00
$1,440.00$1,644.00$1,440.00
$4,483.20
$648.00
$1,260.00
$781.20
$552.00
$546.00
$696.00
Learning Objectives
1 2 3
B (60 points) Compute the value of ending inventory. (10 points for each correct answer)
3.
Garcia Manufacturing Company made purchases of a material as shown in the following listing. The
inventory at the end of the year was 3,500 units. Compute the value of the inventory by each of the three
methods: (a) average cost; (b) first-in, first-out; and (c) last-in, first-out.
Date Units Unit Cost Total Cost
Jan. 5 3,600 $6.20 $ 22,320
Mar. 11 3,000 5.80 17,400
May 14 5,300 6.00 31,800
July 8 1,600 6.30 10,080
Sept. 7 4,000 6.20 24,800
Nov. 10
2,500 6.40 16,000
Total 20,000 $122,400
4. The Willand Company had 320 units on hand at the beginning of the year, with a unit cost of $4.20. The
number of units purchased and the unit cost and the number of units sold during the year are shown.
What would be the value of the ending inventory of 380 units based on the (a) average cost; (b) first-in,
first-out; and (c) last-in, first-out costing methods?
Units UnitUnits Units
Date Purchased Cost Sold on Hand
Jan. 1 $4.20 320
Feb. 2 190 130
Apr. 16 200 $4.32 330
June 10 300 $4.40 630
Aug. 5 280 350
Oct. 12 250 $4.48 600
Nov. 27 220 380
358 Part 5 Business Applications
Assignment 17.1 Continued
a. Average cost:
b. First-in, first-out:
c. Last-in, first-out:
$21,700
$22,200
$21,420
$122,400 4 20,000 5 $6.12
3,500 3 $6.12 5 $21,420
2,500 3 $6.40 5 $16,000
1,000 3 $6.20 5 6,200
3,500 $22,200
3,500 3 $6.20 5 $21,700
a. Average cost:
b. First-in, first-out:
c. Last-in, first-out:
$1,603.20
$1,692.00
$1,649.20
a. Average cost: Beginning inventory 320 units 3 $4.20 5 $1,344
April 16 purchase 200 units 3 4.32 5 864
June 10 purchase 300 units 3 4.40 5 1,320
Oct. 12 purchase
250 units 3 4.48 5 1,120
1,070 units 5 $4,648
$4,648 4 1,070 units 5 $4.34
4.34 3 380 5 1,649.20 (rounded)
b. FIFO: Oct. 12 purchase 250 units 3 $4.48 5 $1,120
June 10 purchase
130
units 3 4.40 5
572
Ending inventory 380 units 5 $1,692
c. LIFO: Beginning inventory 320 units 3 $4.20 5 $1,344.00
April 16 purchase
60 units 3 4.32 5 259.20
Ending inventory 380 units 5 $1,603.20
Score for B (60)
Chapter 17 Inventory and Turnover 359
Assignment 17.2: Inventory Estimating and Turnover
Name
Date Score
A (50 points) Solve the following problems. (2 points for each correct answer)
1. Fill in the blanks in each of the following calculations with the correct amount. Use the formulas
Beginning inventory 1 Purchases 5 Goods available for sale
Goods available for sale 2 Cost of goods sold 5 Ending inventory
Stor
e
A Store B Store C Store D Store E
Beginning inventory $ 80,000 $ 37,000 $42,000
Purchases 90,000 21,000
Goods available for sale 200,000 210,000 109,000 117,000 135,000
Less cost of goods sold 125,000 128,000 30,000 74,000
Ending inventory $ 23,000
2. Each of the five stores in problem 1 had the net sales shown. What was the average percent of markup,
based on cost, for each of the five stores? What was the average percent of markup, based on selling price,
for each of the five stores?
Store A Store B Store C Store D Store E
Net sales $200,000 $150,000 $172,000 $40,000 $100,000
Markup—cost
Markup—selling price
26%25.0%50%14.67%37.5%
35.14%33.33%100%17.19%60%
$61,00087,00082,000$ 75,000
86,000
93,00072,000120,000
$96,000$120,000
Learning Objectives
4 5
A: 200,000 GAFS 2 80,000 BI 5 120,000 P 200,000 GAFS 2 125,000 CGS 5 75,000 EI
B: 210,000 GAFS 2 90,000 P 5 120,000 BI 210,000 GAFS 2 128,000 CGS 5 82,000 EI
C: 109,000 GAFS 2 37,000 BI 5 72,000 P 109,000 GAFS 2 23,000 EI 5 86,000 CGS
D: 117,000 GAFS 2 21,000 P 5 96,000 BI 117,000 GAFS 2 30,000 CGS 5 87,000 EI
E: 135,000 GAFS 2 42,000 BI 5 93,000 P 135,000 GAFS 2 74,000 CGS 5 61,000 EI
A: 200,000 NS 2 125,000 CGS 5 75,000 MU 75,000 MU 4 125,000 CGS 5 60%
75,000 MU 4 200,000 5 37.5%
B: 150,000 NS 2 128,000 CGS 5 22,000 MU 22,000 MU 4 128,000 CGS 5 17.19%
22,000 MU 4 150,000 5 14.67%
C: 172,000 NS 2 86,000 CGS 5 86,000 MU 86,000 MU 4 86,000 CGS 5 100%
86,000 MU 4 172,000 5 50%
D: 40,000 NS 2 30,000 CGS 5 10,000 MU 10,000 MU 4 30,000 CGS 5 33.33%
10,000 MU 4 40,000 5 25.0%
E: 100,000 NS 2 74,000 CGS 5 26,000 MU 26,000 MU 4 74,000 CGS 5 35.14%
26,000 MU 4 100,000 5 26%
3. The Country Kitchen takes inventory at retail sales price every 3 months. Its inventory at the beginning of
last year was $68,500; at 3 months, $55,500; at 6 months, $69,000; at 9 months, $70,000; and at the end of
the year, $44,000. Net sales for the year were $352,000.
a. What was the average inventory?
b. What was the turnover?
4. Steve’s Auto Shop began the year with an inventory of $33,500. Purchases during the year totaled $194,200.
The inventory at the end of the year was $36,400.
a. What was the cost of goods sold?
b. What was the average inventory?
c. What was the turnover?
Score for A (50)
B (50 points) Solve the following problems. (Points for each correct answer as marked)
5. Jackson Wholesalers’ records showed these figures:
Cost Retail Price
Beginning inventory $19,793 $32,990 Net sales for the year $61,450
Purchases for the year $47,200 $78,665 Markup based on sales 40%
Compute the ending inventory:
a. At cost (2 1/2 points):
b. At retail price (2 1/2 points):
$50,205
$30,123
5.47
$34,950
$191,300
5.73
$61,400
360 Part 5 Business Applications
Assignment 17.2 Continued
a. $68,500 1 $55,500 1 $69,000 1 $70,000 1 $44,000 5 $307,000
$307,000 4 5 5 $61,400
b. $352,000 4 $61,400 5 5.73
a. Beginning inventory, January 1 $33,500
Purchases 1
194,200
Goods available for sale $227,700
Inventory, December 31 2
36,400
Cost of goods sold $191,300
b. ($33,500 1 $36,400) 4 2 5 $34,950 average inventory
c. $191,300 4 $34,950 5 5.47
a. Beginning inventory (cost price) $19,793
Purchases (cost price) 1
47,200
Goods available for sale $66,993
Cost of goods sold 2
36,870 ($61,450 3 0.6)
Ending inventory (at cost) $30,123
b. Beginning inventory (selling price) $ 32,990
Purchases (selling price) 1
78,665
Goods available for sale $111,655
Sales 2
61,450
Ending inventory (selling price) $50,205
6. The JM Clothing store kept all merchandise records in terms of selling price. On July 1, the JM books
showed the following information:
Beginning inventory, January 1: $23,500
6-month purchases: 99,000
6-month net sales: 87,800
What was the estimated ending inventory on July 1? (5 points)
7. The Kid’s Land Clothing Store kept all purchase and inventory records on a cost basis. The owner marked
up all goods at 40.0% of the cost price. On July 1, the Kid’s Land books showed the following information:
Beginning inventory, January 1: $1,126,000
6-month purchases: 2,221,400
6-month net sales: 2,508,200
What was the estimated inventory, at cost, on July 1? (5 points)
8. Amy’s Art Shop kept all inventory and sales records on the basis of retail prices. It recorded purchases at
cost and marked up its merchandise at 120% of cost. On January 1, its inventory of art was $260,000.
During the year, its purchases were $300,000 and net sales were $730,000. What was its ending inventory?
(5 points)
$190,000
$1,555,829
$34,700
Chapter 17 Inventory and Turnover 361
Assignment 17.2 Continued
Beginning inventory (selling price) $ 23,500
6-month purchases 1
99,000
Goods available for sale $122,500
Net sales 2
87,800
Ending inventory, July 1 (selling price) $34,700
Beginning inventory (cost price) $1,126,000
6-month purchases (cost price) 1
2,221,400
Goods available for sale $3,347,400
Net sales 2
1,791,571 ($2,508,200 4 1.40)
Ending inventory $1,555,829
Beginning inventory $260,000
Purchases 1
660,000
($300,000 1 120% markup)
Goods available for sale $920,000
Net sales 2
730,000
Ending inventory $190,000
9. From the information given, calculate the estimated cost of goods sold and ending inventory. Round to
the nearest dollar. (1 point for each correct answer)
Cost of
Goods Markup Markup Estimated Estimated
Available Net Based on Based on Cost of Ending
f
or Sale Sales Cost Sales Goods Sold Inventory
a. $204,000 $260,000 30%
b. 268,000 260,000 30%
c. 444,000 350,000 27%
d. 444,000 350,000 27%
e. 37,500 36,000 50%
f. 368,000 400,000 60%
g. 420,000 600,000 40%
h. 440,000 360,000 15%
i. 125,000 180,000 60%
j. 130,000 200,000 100%
10. Maurice Company sells hair products. From the following inventory record sheets for Baby Soft
Shampoo, determine the total units in, total amount, and the value of the ending inventory of
300 bottles based on average cost, FIFO, and LIFO. (2 points for each correct answer)
Date Units In Cost Amount
1/11 400 $3.40 $1,360 Average cost:
1/23 50 3.00 150
2/10 100 3.20 320 FIFO:
2/20 200 3.30 660
2/25
80 3.50 280 LIFO:
Score for B (50)
$2,770830
$1,020
$1,004
$1,002
$30,000$100,000
$12,500$112,500
$126,957$313,043
$60,000$360,000
$208,000$160,000
$13,500$24,000
$168,409$275,591
$188,500$255,500
$86,000$182,000
$4,000$200,000
362 Part 5 Business Applications
Assignment 17.2 Continued
a. $260,000 4 130% 5 $200,000 $204,000 2 $200,000 5 $4,000
b. $260,000 3 70% 5 $182,000 $268,000 2 $182,000 5 $86,000
c. $350,000 3 73% 5 $255,500 $444,000 2 $255,500 5 $188,500
d. $350,000 4 127% 5 $275,591 $444,000 2 $275,591 5 $168,409
e. $36,000 4 150% 5 $24,000 $37,500 2 $24,000 5 $13,500
f. $400,000 3 40% 5 $160,000 $368,000 2 $160,000 5 $208,000
g. $600,000 3 60% 5 $360,000 $420,000 2 $360,000 5 $60,000
h. $360,000 4 115% 5 $313,043 $440,000 2 $313,043 5 $126,957
i. $180,000 4 160% 5 $112,500 $125,000 2 $112,500 5 $12,500
j. $200,000 4 200% 5 $100,000 $130,000 2 $100,000 5 $30,000
Average cost: $2,770 4 830 5 $3.34; 300 3 $3.34 5 $1,002
FIFO: (80 3
$3.50) 1 (200 3 $3.30) 1 (20 3 $3.20) 5 $1,004
LIFO: 300 3 $3.40 5 $1,020
Depreciation
Chapter 18 Depreciation 363
Learning Objectives
By studying this chapter and completing all assignments, you will be able to:
Compute depreciation using the straight-line method.
Compute depreciation using the units-of-production method.
Compute depreciation using the declining-balance method.
Compute depreciation using the sum-of-the-years-digits method.
Compute depreciation for income tax purposes using the Modified
Accelerated Cost Recovery System (MACRS).
Compute partial-year depreciation using the five different primary
depreciation methods covered.
18
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