Question

Fermento sells a wine it purchases from a local brewer. Fermento stocked up on the wine throughout the year, preparing for a special millenium sales event in late December. On January 1, Fermento had 30 bottles on hand that cost $31 each. They also made the following purchases:
50 bottles for $28 each on Mar. 28
20 bottles for $27 each on Sep. 14
15 bottles for $30 each on Nov. 5

Fermento’s sales were as follows:
10 from the beginning inventory
30 from the Mar. 28 purchase
17 from the Sep. 14 purchase
13 from the Nov. 5 purchase
All of the wine was sold for $84 per bottle.

Assume Fermento uses LIFO for inventory costing.
1. What was Fermento’s cost of goods available for sale for the year?  
2. What was Fermento’s cost of ending inventory for the wine at December 31?  
3. What was Fermento’s gross margin on the wine for the year?  

Assume Fermento uses FIFO for inventory costing.
4. What was Fermento’s cost of goods available for sale for the year?  
5. What was Fermento’s gross margin on the wine for the year?  

Answer 1

Solution 1 , 2 and 3:

Periodic method will be used for inventory costing under FIFO and LIFO because date of Sale are not available.

Computation of COGS and ending inventory - LIFO
Particulars	Cost of goods available for sale			Cost of goods sold			Ending Inventory
	Nos of units	Unit Cost	Cost of goods available for sale	Nos of units sold	Unit Cost	Cost of goods sold	Nos of units in ending inventory	Unit Cost	Ending inventory
Beginning inventory	30	$31.00	$930				30	$31.00	$930
Purchases:
28-Mar	50	$28.00	$1,400	35	$28.00	$980	15	$28.00	$420
14-Sep	20	$27.00	$540	20	$27.00	$540	0
05-Nov	15	$30.00	$450	15	$30.00	$450	0
Total	115		$3,320.00	70		$1,970.00	45		$1,350.00

Gross Margin = Sales - Cost of goods sold = (70*$84) - $1970 = $5880 - $1970 = $3,910

Solution 4 and 5:

Computation of COGS and ending inventory - FIFO
Particulars	Cost of goods available for sale			Cost of goods sold			Ending Inventory
	Nos of units	Unit Cost	Cost of goods available for sale	Nos of units sold	Unit Cost	Cost of goods sold	Nos of units in ending inventory	Unit Cost	Ending inventory
Beginning inventory	30	$31.00	$930	30	$31.00	$930	0
Purchases:
28-Mar	50	$28.00	$1,400	40	$28.00	$1,120	10	$28.00	$280.00
14-Sep	20	$27.00	$540				20	$27.00	$540.00
05-Nov	15	$30.00	$450				15	$30.00	$450.00
Total	115		$3,320.00	70		$2,050.00	45		$1,270.00

Gross margin = Sales - cost of goods sold = $5880 - $2050 = $3,830