Homework: Cookie Creations
This homework is a continuation of the Cookie Creations case study from previous chapters. From the information gathered in the previous chapters, read the continuation of the Cookie Creations case study.
The case study allows you to apply what you have learned about accounting for merchandising operations and inventories.
Part A
Because Natalie has had such a successful first few months, she is considering other opportunities to develop her business. One opportunity is the sale of European mixers. The owner of Kzinski Supply Company has approached Natalie to become the exclusive distributor of these fine mixers in her state. The current cost of a mixer is approximately $575, and Natalie would sell each one for $1,150. Natalie comes to you for advice on how to account for these mixers. Each appliance has a serial number and can be easily identified.
Natalie has come to you for your advice on how to account for these mixers and asks you the questions below, which you must address.
1) Would you consider these mixers to be inventory, or should these mixers be classified as supplies or equipment?
2) Which inventory tracking system should Natalie use: perpetual or periodic?
3) Which system do you think is better: perpetual or periodic?
4) Which system would you recommend for the type of inventory that Natalie wants to sell?
5) How often does Natalie need to count inventory if she maintains it using the perpetual system? In contrast, does she need to count inventory at all?
Part II
Natalie is busy establishing both divisions of her business (cookie classes and mixer sales), and she is completing her business degree. Her goals for the next 11 months are to sell one mixer per month and to give two to three classes.
The cost of the fine European mixers is expected to increase. Natalie has just negotiated new terms with the owner of Kzinski Supply Company, which will include shipping costs in the negotiated purchase price (mixers will be shipped free on board (FOB) destination). Assume that Natalie has decided to use a periodic inventory system and now must choose a cost flow assumption for her mixer inventory. The transactions listed below occur in February to May 2020.
Feb. 2: Natalie buys two deluxe mixers on account from Mixer Supply Company for $1,200 ($600 each), FOB destination, terms n/30.
Feb. 16: She sells one deluxe mixer for $1,150 cash.
Feb. 25: She pays the amount owed to Mixer Supply Company.
Mar. 2: She buys one deluxe mixer on account from Mixer Supply Company for $618, FOB destination, terms n/30.
Mar. 30 : Natalie sells two deluxe mixers for a total of $2,300 cash.
Mar. 31: She pays the amount owed to Kzinski Supply Company.
Apr. 1 : She buys two deluxe mixers on account from Mixer Supply Company for $1,224 ($612 each), FOB destination, terms n/30.
Apr. 13: She sells three deluxe mixers for a total of $3,450 cash.
Apr. 30: Natalie pays the amount owed to Mixer Supply Company.
May 4: She buys three deluxe mixers on account from Mixer Supply Company for $1,875 ($625 each), FOB destination, terms n/30.
May 27: She sells one deluxe mixer for $1,150 cash.
For Part B, determine the cost of goods available for sale. You will recall from Chapter 5 (see Part A above) that at the end of January, Cookie Creations had three mixers on hand at a cost of $575 each. For Part II of the homework, you will calculate the following items:
1. ending inventory,
2. cost of goods sold,
3. gross profit, and
4. gross profit rate under each of the following methods: last-in, first-out (LIFO); first-in, first-out (FIFO); and average cost.
Format your homework according to the give formatting requirements:
1. The answer must be double spaced, typed, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also includes a cover page containing the title of the homework, the course title, the student's name, and the date. The cover page is not included in the required page length.
3. Also include a reference page. The references and Citations should follow APA format. The reference page is not included in the required page length.