Question

Nathan’s Grills, Inc., imports and sells premium-quality gas grills. The company had the following layers in its LIFO inventory at January 1, 2014, at which time the replacement cost of the inventory was $900 per unit.

Year LIFO Layer Added                 Units                   Unit Cost

    2011 100                     $600

    2012 50                       700

    2013 30                       800

The replacement cost of grills remained constant throughout 2014. Nathan’s sold 200 units during 2014. The company established the selling price of each unit by doubling its replacement cost at the time of sale.

Calculate gross margin percentage in 2014, assuming Nathan's purchased 215 units in 2014.

Calculate gross margin percentage in 2014, assuming Nathan's purchased 80 units in 2014.

Answer 1

Solution:

We know, LIFO means, last in, first out. It means recently purchased inventory items are recorded as sold first.

1.) According to the statement, purchase units in 2014 is 215 units and sale is 200 units.

Purchased price of the units =$ 900 per unit

Sale price of the unit =$1,800 per unit ($900 ×2)

Cost of goods sold (200 units ×$900)	$180,000
Sales (200 units × $1,800)	$360,000
Gross margin (Sales - Cost of goods sold)	$180,000($360,000 - $180,000)
Gross margin percentage (gross margin ÷ Total sales)×100	50% ($180,000/$360,000)×100

2.) According to the statement, Purchases units in 2014 is 80 units and sold 200 units.

Cost of goods sold	(80 units × $900)+(30 units × $800)+(50 units × $700)+(40 units ×$600)
	$155,000($72,000 + $24,000 + $35,000 +$24,000)
Sales	$$360,000($1,800 ×200 units)
Gross margin (sales - cost of goods sold)	$205,000($360,000 - $155,000)
Gross margin percentage(gross margin ÷total sales) ×100	56.94% ($205,000/$360,000)

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