Question

8. Assume that a company has two departments with the following data

Department A Department B Total
Sales - - - - - - - - - - - - - - - - - - - - - - - - - - -Birr 900,000 birr 600,000 Br.1,500,000
Cost of Sales & operating expenses - - - - 810,000 760,000 1,570,000
Operating income - - - - - - - - - - - - - - - - - 90,000 Br.(160,000) (70,000)
Suppose 40% of total cost and operating expenses are unavoidable, should the company delete department B?
Assume that the beginning inventory, purchases and sales of queen’s Supermarket for the month of January are as follows:
Units cost
Jan. 1 inventory 12 Br.10.00
6 sale 5
10 purchase 10 Br.12.50
20 Sale 8
25 purchase 8 Br.12.50

30 purchase 15 Br.14.00
9. Calculate the cost of goods sold and ending inventory under the perpetual inventory system and assume that the company uses FIFO methods of inventory system.
10. Calculate the cost of goods sold and ending inventory under a periodic inventory system. And assume that the company uses LIFO methods of inventory system.
11. Compute the cost of goods sold and ending inventory under Average cost Method (Moving Average)

Answer 1

8. The company should not delete department B because it is generating a positive operating income. The company should look for ways to reduce its cost of sales and operating expenses in order to increase its operating income.

9. The cost of goods sold and ending inventory under the perpetual inventory system and assume that the company uses FIFO methods of inventory system are as follows:

Cost of goods sold = 5 * 10 + 8 * 12.50 + 15 * 14 = 145

Ending inventory = 12 - 5 = 7

10. The cost of goods sold and ending inventory under a periodic inventory system and assume that the company uses LIFO methods of inventory system are as follows:

Cost of goods sold = 5 * 10 + 8 * 12.50 = 110

Ending inventory = 15 * 14 = 210

11. The cost of goods sold and ending inventory under Average cost Method (Moving Average) are as follows:

Cost of goods sold = (12 * 10 + 10 * 12.50 + 8 * 12.50 + 15 * 14) / 4 = 126.25

Ending inventory = (12 * 10 + 10 * 12.50 + 8 * 12.50 + 15 * 14) / 4 - 8 = 118.75