A Company Had The Following Purchases During The Year

A Company Had The Following Purchases During The Current Year Ja

A company had the following purchases during the current year: January: 7 units at $105, February: 12 units at $130, May: 13 units at $130, October: 14 units at $110, November: 13 units at $140. On December 31, there were 23 units remaining in ending inventory. These 23 units consisted of 2 from January, 5 from February, 5 from May, 6 from October, and 5 from November. Using the specific identification method, what is the cost of the ending inventory? $2,870, $2,720, $1,515, $3,985, $3,220.

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The calculation of ending inventory using the specific identification method involves identifying the actual cost of each specific unit remaining in inventory at the end of the accounting period. This method is particularly useful when inventory items are distinguishable and unique, such as cars, jewelry, or custom-made products. Given the detailed data on purchases and the specific units remaining from each purchase batch, we can determine the total ending inventory cost by summing the costs of these specific units.

To perform this calculation, we start with the details of each purchase and the corresponding units remaining in inventory. The data indicates that at year-end, the remaining units consist of 2 from January, 5 from February, 5 from May, 6 from October, and 5 from November. Each batch's cost per unit is given, enabling straightforward calculation.

First, let's identify the cost of units remaining from each purchase period:

  • January: 2 units at $105 each, total = 2 x $105 = $210
  • February: 5 units at $130 each, total = 5 x $130 = $650
  • May: 5 units at $130 each, total = 5 x $130 = $650
  • October: 6 units at $110 each, total = 6 x $110 = $660
  • November: 5 units at $140 each, total = 5 x $140 = $700

Next, summing these amounts gives the total ending inventory cost:

$210 (January) + $650 (February) + $650 (May) + $660 (October) + $700 (November) = $2,870.

Therefore, the total ending inventory cost, calculated using the specific identification method, amounts to $2,870.

This method precisely reflects the value of inventory based on the actual costs of the specific units remaining, providing an accurate measure of inventory value at year-end. The calculated amount of $2,870 matches one of the provided options, confirming its correctness.

References

  • Gibson, C. H. (2019). Financial Reporting and Analysis. McGraw-Hill Education.
  • Horngren, C. T., Harrison, W. T., & Oliver, M. S. (2018). Financial & Managerial Accounting. Pearson.
  • Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2020). Financial Accounting. Wiley.
  • CAP (2019). Certified Accounting Principles. AICPA Publications.
  • Libby, T., Libby, R., & Short, D. G. (2021). Financial Accounting. McGraw-Hill Education.
  • Ingram, R., Haskins, M., & Dopson, L. (2018). Inventory Management and Control. Routledge.
  • Needles, B. E., & Powers, M. (2018). Financial Accounting. Cengage Learning.
  • Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial Accounting Theory and Analysis. Wiley.
  • Accounting Tools. (2021). Inventory Valuation Methods. Retrieved from https://www.accountingtools.com
  • Investopedia. (2022). Specific Identification Method. Retrieved from https://www.investopedia.com

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