Question

You have the following information for Sheridan Company. Sheridan uses the periodic method of accounting for its inventory transactions. Sheridan 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 150 diamonds at a cost of $320 per diamond.
March 3		Purchased 200 diamonds at a cost of $360 each.
March 5		Sold 190 diamonds for $650 each.
March 10		Purchased 325 diamonds at a cost of $385 each.
March 25		Sold 400 diamonds for $700 each.

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

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

Answer 1

Total Units available for sale = 150+200+325 = 675 Units

Sales unit = 190+400 = 590 Units

a) FIFO method

Cost of goods sold = (150*320+200*360+240*385) = 212400

Gross profit = 403500-212400 = 191100

b) LIFO method

Cost of goods sold = 325*385+200*360+65*320 = 217925

Gross profit = 403500-217925 = 185575