In October Nicole eliminated all existing inventory of

cosmetic items #2751

In October, Nicole eliminated all existing inventory of cosmetic items. The trouble of ordering
and tracking each product line had exceeded the profits earned. In December, a supplier asked
her to sell a prepackaged spa kit. Feeling she could manage a single product line, Nicole
agreed. Nicole’s Getaway Spa (NGS) would make monthly purchases from the supplier at a
cost that included production costs and a transportation charge. NGS would keep track of its
new inventory using a perpetual inventory system.On December 31, NGS purchased 10 units at
a total cost of $ 6 per unit. Nicole purchased 25 more units at $ 8 in February. In March, Nicole
purchased 15 units at $ 10 per unit. In May, 50 units were purchased at $ 9.80 per unit. In June,
NGS sold 50 units at a selling price of $ 12 per unit and 35 units at $ 10 per unit.Required:1.
Explain whether the transportation cost included in each purchase should be recorded as a cost
of the inventory or immediately expensed.2. Compute the Cost of Goods Available for Sale,
Cost of Goods Sold, and Cost of Ending Inventory using the first-in, first-out (FIFO) method.3.
Calculate the inventory turnover ratio (round to one decimal place), using the inventory
purchased on December 31 as the beginning inventory. The supplier reported that the typical
inventory turnover ratio was 6.0. How does NGS’s ratio compare?4. Would a different inventory
cost flow assumption allow Nicole’s Getaway Spa to better minimize its income tax?View
Solution:
In October Nicole eliminated all existing inventory of cosmetic items

ANSWER
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