Hemming uses a periodic inventory system. Assume that ending inventory is consists of 45 units from the March 14 purchase, 75 units from the July 30 purchase, and all 100 units from the October 26 purchase. Using the specific identification method, calculate the (a) the cost of goods sold and (b) the gross profit.

Question:

Use the following information for the Exercises below.

Hemming CO. reported the following current year purchases and sales for its only product.

DateActivities              Units Acquired at CostUnits Sold at Retail

Jan. 1Beginning inventory 200 units at $10 = $2,000  

Jan. 10Sales             150 units at $40

Mar. 14Purchase           350 units at $15= 5,250  

Mar. 15Sales            300 units at $40

July. 30Purchase           450 units at $20 = 9,000  

Oct. 5Sales            430 units at $40

Oct. 26Purchase           100 units at  25 = 2,500  

Totals1,100 units                $18,750

Required:

Hemming uses a periodic inventory system. Assume that ending inventory is consists of 45 nits from the March 14 purchase, 75 units from the July 30 purchase, and all 100 units from the October 26 purchase. Using the specific identification method calculate the (a) cost of goods sold and (b) the gross profit.

a) Cost of goods sold = Cost of goods available for sale minus ending inventory = $18,750 - $4,675 = $14,075

b) Gross profit = Sales - Cost of goods sold

= $35,200 - 14,075 = $21,125

Explanation:

a) Sales:

Jan. 10Sales,  150 units at $40   =   $6,000

Mar. 15Sales, 300 units at $40   =    12,000

Oct. 5Sales, 430 units at $40  =    17,200

Total sales                                     = $35,200

b) Determination of Ending Inventory:

March 14 purchase  45 units       x   $15 =     $675

July 30 purchase  75 units          x  $20 =  $1,500

October 26 purchase  100 units x  $25 = $2,500

Total cost of Ending Inventory                   $4,675

c) Specific Identification Method:

These inventory costing methods are used to ascertain the cost of goods sold and the ending inventory values.  Using periodic inventory, the valuation is done at the end of the period.  They are FIFO (First-In-First-Out) method, LIFO (Last-In-First-Out) method, weighted average method, and specific identification method.  These methods can be applied under perpetual inventory system or periodic inventory system.  The difference is in the timing of the valuation activity.

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