Question

You have the following information for Crane Company. Crane uses the periodic method of accounting for its inventory transactions. Crane only carries one brand and size of diamonds—all are identical. Each batch of diamonds purchased is carefully coded and marked with its purchase cost.

March 1 Beginning inventory 160 diamonds at a cost of $300 per diamond.

March 3 Purchased 210 diamonds at a cost of $340 each.

March 5 Sold 170 diamonds for $600 each.

March 10 Purchased 325 diamonds at a cost of $365 each.

March 25 Sold 380 diamonds for $650 each.

Assume that Crane uses the FIFO cost flow assumption. Calculate cost of goods sold. How much gross profit would the company report under this cost flow assumption?

Cost of goods sold

Gross Profit

Assume that Crane uses the LIFO cost flow assumption. Calculate cost of goods sold. How much gross profit would the company report under this cost flow assumption?

Cost of Goods Sold

Gross Profit

Answer 1

STATEMENT SHOWING INVENTORY RECORD UNDER PERIODIC FIFO METHOD
	RECIEPTS	COST OF GOODS SOLD	BALANCE
DATE	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $
01-Mar	160	300	48000	160	300	48000
Purchasse
03-Mar	210	340	71400	210	340	71400
10-Mar	325	365	118625	180	365	65700	145	365	52925
TOTAL	695		238025	550		185100	145		52925
STATEMENT SHOWING INVENTORY RECORD UNDER PERIODIC LIFO METHOD
	RECIEPTS	COST OF GOODS SOLD	BALANCE
DATE	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $
01-Mar	160	300	48000	15	300	4500	145	300	43500
Purchasse
03-Mar	210	340	71400	210	340	71400
10-Mar	325	365	118625	325	365	118625
TOTAL	695		238025	550		194525	145		43500
Req 1.
Cost of goods sold under FIFO		185100
Gross Profit under FIFO:
Sales revenue	(170*600+380*650)	349000
Less: Cost of goods sold		185100
Gross Profit under FIFO:		163900
Req 2
Cost of goods sold under LIFO		194525
Gross Profit under LIFO
Sales revenue	(170*600+380*650)	349000
Less: Cost of goods sold		194525
Gross Profit under LIFO		154475