Question

Hemming Co. reported the following current-year purchases and sales for its only product.
    

Date

Activities

Units Acquired at Cost

Units Sold at Retail

Jan.

1

Beginning inventory

300

units

@ $14.00

=

$

4,200

Jan.

10

Sales

250

units

@ $44.00

Mar.

14

Purchase

520

units

@ $19.00

=

9,880

Mar.

15

Sales

460

units

@ $44.00

July

30

Purchase

500

units

@ $24.00

=

12,000

Oct.

5

Sales

480

units

@ $44.00

Oct.

26

Purchase

200

units

@ $29.00

=

5,800

Totals

1,520

units

$

31,880

1,190

units

Required:
Hemming uses a perpetual inventory system.
  
1. Determine the costs assigned to ending inventory and to cost of goods sold using FIFO.
2. Determine the costs assigned to ending inventory and to cost of goods sold using LIFO.
3. Compute the gross margin for FIFO method and LIFO method.

Answer 1

1.

Date	Activities	Units*Cost	Ending inventory
Jan. 1	Beginning inventory	300*$14=$4,200	300*$14=$4,200
Jan. 10	Cost of goods sold	250*$14=$3,500	50*$14=$700
Mar. 14	Purchases	520*$19=$9,880	50*$14=$700 520*$19=$9,880
Mar. 15	Cost of goods sold	50*$14=$700 410*$19=$7,790	110*$19=$2,090
July 30	Purchases	500*$24=$12,000	110*$19=$2,090 500*$24=$12,000
Oct. 5	Cost of goods sold	110*$19=$2,090 370*$24=$8,880	130*$24=$3,120
Oct. 26	Purchases	200*$29=$5,800	130*$24=$3,120 200*$29=$5,800

Ending inventory = $3,120 + $5,800

= $8,920

Cost of goods sold = $3,500 + ($700 + $7,790) + ($2,090 + $8,880)

= $22,960

2.

Date	Activities	Units*Cost	Ending inventory
Jan. 1	Beginning inventory	300*$14=$4,200	300*$14=$4,200
Jan. 10	Cost of goods sold	250*$14=$3,500	50*$14=$700
Mar. 14	Purchases	520*$19=$9,880	50*$14=$700 520*$19=$9,880
Mar. 15	Cost of goods sold	460*$19=$8,740	50*$14=$700 60*$19=$1,140
July 30	Purchase	500*$24=$12,000	50*$14=$700 60*$19=$1,140 500*$24=$12,000
Oct. 5	Cost of goods sold	480*$24=$11,520	50*$14=$700 60*$19=$1,140 20*$24=$480
Oct. 26	Purchase	200*$29=$5,800	50*$14=$700 60*$19=$1,140 20*$24=$480 200*$29=$5,800

Ending inventory = $700 + $1,140 + $480 + $5,800

= $8,120

Cost of goods sold = $3,500 + $8,740 + $11,520

= $23,760

3.

Gross Margin = Sales - Cost of goods sold

FIFO = (1,190 * $44) - $22,960 = $29,400

LIFO = (1,190 * $44) - $23,760 = $28,600