Question

emming 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 225 units @ $11.00 = $ 2,475 Jan. 10 Sales 150 units @ $41.00 Mar. 14 Purchase 340 units @ $16.00 = 5,440 Mar. 15 Sales 300 units @ $41.00 July 30 Purchase 425 units @ $21.00 = 8,925 Oct. 5 Sales 395 units @ $41.00 Oct. 26 Purchase 125 units @ $26.00 = 3,250 Totals 1,115 units $ 20,090 845 units Exercise 5-9A Periodic: Inventory costing system LO P3 Required: Hemming uses a periodic inventory system. (a) Determine the costs assigned to ending inventory and to cost of goods sold using FIFO. (b) Determine the costs assigned to ending inventory and to cost of goods sold using LIFO. (c) Compute the gross margin for each method.

Answer 1

Units available for sale = 1,115

Sales in units = 845

Units in ending inventory = Units available for sale - Sales in units

= 270

Cost of goods available for sale = $20,090

Sales = (150 *$41) + (300 * $41) + (395 * $41)

= $34,645

(a)

Under the First in first out (FIFO) method of inventory valuation, Cost of goods sold consists of the units from beginning inventory and earliest purchases. Ending inventory consists of the units from recent purchases.

Ending inventory of 270 units consists of 125 units from Oct. 26 purchases and 145 units from July 30 purchases

Ending inventory = $3,250 + (145 * $21)

= $6,295

Cost of goods sold = Cost of goods available for sale - Ending inventory

= $20,090 - $6,295

= $13,795

(b)

Under the Last in first out (LIFO) method of inventory valuation, Cost of goods sold consists of the units from recent purchases. Ending inventory consists of the units from beginning inventory and earliest purchases.

Ending inventory of 270 units consists of 225 units from beginning inventory and 45 units from March 14 purchases.

Ending inventory = $2,475 + (45 * $16)

= $3,195

Cost of goods sold = Cost of goods available for sale - Ending inventory

= $20,090 - $3,195

= $16,895

(c)

Gross margin = Sales - Cost of goods sold

FIFO = $34,645 - $13,795

= $20,850

LIFO = $34,645 - $16,895

= $17,750