Question

Gotiable sells straw hats for $24 each. The April inventory purchases are summarized below. Gotiable sold 142 hats at a hat festival on April 28. Units Cost each Dollars Beg. Inv. 84 3 252 April 2 75 4 300 April 14 66 7 462 April 23 52 8 416

Assume that Gotiable uses the average cost method for inventory costing.
1. What is the average cost of one hat? (Round to the nearest penny (2 decimal points)).
2. What will be the dollar value of the inventory on the April 30th balance Sheet? (Round to the nearest dollar)
3. What will Gotiable report as Gross margin for the hats for the month of April? (Round to the nearest dollar)

Answer 1

Answer and Explanation:

The computation is shown below:

1.

Particulars Units Unit Cost Dollars

Beg. Inv. 84 $3 $252

Apr-02 75 $4 $300

Apr-14 66 $7 $462

Apr-23 52 $8 $416

Total 277 $1,430

Average cost of one hat is

= Total cost of purchases ÷ Units purchased

= $1,430 ÷ 277 units

= $5.16

2.

Ending Inventory in Units = Units purchased - Units sold

= 277 units - 142 units

= 135 units

Now

Value of Ending Inventory = Units in Ending Inventory × Average cost per unit

= 135 units × $5.16

= $696.60

= $697

3

Gross Margin = Units sold × (Selling Price - Cost of goods sold)

= 142 units × ($24 - $5.16)

= $2,675.28

= $2,675