Ruth Naturely founded Holistic Health on December 26, 2018. Ruth and her family contributed $200,000 in exchange for 20,000 shares of $0.25 par value common stock on January 2, 2019. The mission of the company is to provide natural products to people to enhance overall health.
The company’s primary customers are independent health food stores; some of which have more than one store. The company sells products at Farmer’s Markets and other natural products trade shows and sells products online.
The company purchases five different products from Organic Health, a small all-natural manufacturing company located in India. Organic Health ships products by Federal Express to Holistic Health and includes the shipping cost in the purchase cost per unit of product. Holistic Health pays a quality inspector who works at the India manufacturing plan to ensure the quality and integrity of the products.
A brief description and natural ingredients of the five products follows:
1) Natural Hair Oil: Promotes a healthy scalp that reduces hair loss and promotes strong hair. Gray hair may return to the original color. Natural organic ingredients consist of: Centella or Gotu kala (Brahmi), Camellia Oil, and Indian Gooseberry (Amla) 16 ounces $39.99 price
2) Hair Conditioner: A unique natural treatment to intensively condition and treat damaged, dry and frizzy hair due to bleaching, perms, environment damage or chlorinated water. Natural organic ingredients consist of: Ultra-moisturizing Shea, Abysinnian, Jojoba Oil, Avocado Oils, and essential oils of Myrrh, Rosemary, and Chamomile. 16 ounces $19.99 price
3) Rose Anti-wrinkle Creme: Infuses beauty and health into the face overnight. Extremely beneficial for mature, wrinkled, weathered, blotchy, dry and ultra-dry skin. Natural organic ingredients consist of: Olive Butter, Shea, Raspberry Seed Oil, Pumpkin Seed Butter, Rose Extract, naturally honey-scented Beeswax, Lavender Oil, and Chamomile Oil.
12 ounces $49.99 price
4) Acai-Orchid Anti-aging Daily Moisturizer: Contains skin-beneficial anti-oxidants for daily use and moisturizer under makeup or alone. Promotes healthy even skin tone and protects from pollution and environmental effects. Natural organic ingredients consist of: Aloe, Jojoba, Orchid Extract, Acai berry, Apple pectin, Wild Orchid. 12 ounces $49.99 price
5) Tooth Paste: All-natural tooth paste that strengthens gums, removes plaque, and whitens teeth.
Organic natural ingredients consist of: Jojoba, Antimicrobial oils of Myrrh & Frankincense, Clove oil, Peppermint, and Stevia. 8 ounces $9.99 price
Additional information:
The company purchases all inventory from India Organic Health, Inc. Holistic Health placed and received one order per month in January through November. In December 2019, India Organic Health implemented price increases for each item and Holistic Health began purchasing inventory each week.
The company assumes December Online sales occurred on the first day of the month.
They assume all other sales occurred at the end of each month (January through November) and the end of each week (December). The company has determined that the difference that would occur if they used the actual date is insignificant.
Work to complete: Value Inventory and Cost of Goods Sold for each Products
1) Average Cost:
• Use the “Purch + Periodic Aver” workbook. This workbook provides the detail of all purchases and sales of each inventory item.
• Product 1 is complete. First, review the computations for products 1.
• Second, do the same procedures for all other products.
• Value Cost of Goods sold first: quantity sold x average cost. Then value ending inventory at total available cost less the cost of goods sold.
• The Excel should be formatted to compute the total company cost of goods sold and ending inventory for all products; however, you should check the formulas and make sure that it is correct.
2) FIFO:
• Use the workbook “Inv Rept - FIFO” to value Ending Inventory and complete the ending inventory report. Add rows if necessary.
o Review the computations for the first product before you begin your work.
o Value inventory for all other products
o The Excel will total all 5 products to get the total inventory for Holistic Health.
However, you should check the formulas to make sure.
• Important: This report details and computes the value of ending inventory (quantities left in the warehouse), NOT the Cost of Goods sold. List the quantities and costs of inventory the company holds at year end (a row for each date of purchase).
o The last items purchased are considered held and on hand in the warehouse.
3) LIFO:
• Use the workbook “Inv Rept - LIFO” to value Ending Inventory and complete the ending inventory report. Add rows if necessary
o Review the computations for the first product before you begin your work.
o Value inventory for all other products
o The Excel will total all 5 products to get the total inventory for Holistic Health.
However, you should check the formulas to make sure.
• Important: This report details and computes the value of ending inventory (quantities left in the warehouse), NOT the Cost of Goods sold. List the quantities and costs of inventory the company holds at year end (a row for each date of purchase).
o The first items purchased are considered held and on hand in the warehouse.
4) Summarize the results of your work below for each method:
Periodic Average Cost Inventory value on 12/31/19: $_____________
Cost of goods sold 2019: $_____________Periodic FIFO Inventory value on 12/31/19: $_____________
Cost of goods sold 2019: $_____________Periodic LIFO Inventory value on 12/31/19: $_____________
Cost of goods sold 2019: $_____________5) Compare the 3 Methods on the Income Statement:
• Complete the income statement on the Excel workbook “Various Inc Stmts” for each method.
• Think about the different net income that results from using a different method.
o Add three to six zeros to the numbers (in your mind only) and the method chosen has a significant impact!
Also: Take a look at the Perpetual moving average and the Perpetual LIFO workbooks and notice the difference in how inventory is valued using Periodic and Perpetual.
Do not do any work on the Perpetual Excel Workbooks.
6) Determine the most appropriate inventory method for Holistic Health and support your recommendation. Think about which method will best reflect Holistic Health’s economic situation. The reason should not be related to maximizing the amount of income earned. You must be very specific about how your reason applies to Holistic Health’s situation and general comments that might apply to any company will earn no credit.
Selected Method: ____________________
Reasons for selected method below: YOUR WRITING MUST BE EASY TO READ OR YOU WILL NOT EARN CREDIT.
7) Financial Reporting: Complete the balance sheet and the income statement using your chosen method.
• Enter the cost of goods sold on the “Income Statement” workbook and the ending inventory value on the “Balance Sheet” workbook. Income taxes for the current year have not yet been paid. This is the first year of operations.
• Enter the inventory value using your method and complete the balance sheet. This is the first year of operations.
8) Submit your work: Save the EXCEL file name:.xls with your name in the file name.