Your Uncle Ben, who owns a small bookstore, asks you about calculating inventory quantities. He is thinking about implementing a new system for his business, and he asks your advice. You ask Uncle Ben about the method he is using for inventory costing. "What's inventory costing?" he asks. After explaining the different methods of costing, you offer to calculate his inventory costs for him. He explains that he typically spends the same amount for paperbacks, which was $3 apiece last month. He had 1,743 of them in stock at the beginning of June. On the 15th of June, he added 2,500 more of them to his inventory at a cost of $3.25 apiece, reflecting an increase in paper prices. He sold 1,986 paperbacks in the first fifteen days of June.

 a. Calculate Uncle Ben's inventory costs using the first in, first out (FIFO) method.

c. Calculate Uncle Ben's inventory costs using the weighted average method.

2. A couple months later, a pipe bursts in Uncle Ben's bookstore. The water damage ruins most of his inventory. Since your last inventory count in June, Uncle Ben bought $4,875 in new inventory. Sales were $4,194.59. His gross profit during this time was 35 percent.

Calculate Uncle Ben's inventory lost using the gross profit method, using you inventory costs from the weighted average method.

3. After recovering from the pipe burst incident, Uncle Ben is considering looking for an outside investor. He wants to grow the bookstore and sees how well it is doing, even with the setback. He tells you he now spends $3.50 for paperbacks. He has 2,630 of them in stock. He has 879 paperbacks left from before the pipe burst that he bought at $3.25 apiece. He sold 1,203 in the past fifteen days.

Indicate the method that Uncle Ben should use to calculate inventory lost that would be most attractive to investors. Then calculate inventory lost using that method.

Answer rating: 100% (QA)

1 a First in first out FIFO Beginning inventory cost 1743 x 3 5229 Additional inventor... View the full answer