Question

Required information

[The following information applies to the questions displayed below.]
  
Hemming 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

215

units

@ $10.60

=

$

2,279

Jan.

10

Sales

180

units

@ $40.60

Mar.

14

Purchase

320

units

@ $15.60

=

4,992

Mar.

15

Sales

260

units

@ $40.60

July

30

Purchase

415

units

@ $20.60

=

8,549

Oct.

5

Sales

400

units

@ $40.60

Oct.

26

Purchase

115

units

@ $25.60

=

2,944

Totals

1,065

units

$

18,764

840

units

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

• All working forms part of the answer
• Requirement ‘a’: FIFO-Periodic working and answer

FIFO	Cost of Goods available for sale			Cost of Goods Sold			Ending Inventory
	Units	Cost/unit	COG for sale	Units sold	Cost/unit	COGS	Units	Cost/unit	Ending inventory
Beginning Inventory	215	$    10.60	$    2,279.00	215	$    10.60	$       2,279.00	0	$    10.60	$                   -
Purchases:
14-Mar	320	$    15.60	$    4,992.00	320	$    15.60	$       4,992.00	0	$    15.60	$                   -
30-Jul	415	$    20.60	$   8,549.00	305	$    20.60	$       6,283.00	110	$    20.60	$      2,266.00
26-Oct	115	$    25.60	$    2,944.00		$    25.60	$                    -	115	$    25.60	$      2,944.00
			$                 -		$           -	$                    -	0	$           -	$                   -
TOTAL	1065		$ 18,764.00	840		$    13,554.00	225		$      5,210.00

Ending Inventory = 225 unit valued at $ 5,210

Cost of Goods Sold = 840 units of $ 13,554

• Requirement ‘b’: LIFO-Periodic working and answer

LIFO	Cost of Goods available for sale			Cost of Goods Sold			Ending Inventory
	Units	Cost/unit	COG for sale	Units sold	Cost/unit	COGS	Units	Cost/unit	Ending inventory
Beginning Inventory	215	$    10.60	$    2,279.00		$    10.60	$                    -	215	$    10.60	$      2,279.00
Purchases:
14-Mar	320	$    15.60	$    4,992.00	310	$    15.60	$       4,836.00	10	$    15.60	$         156.00
30-Jul	415	$    20.60	$    8,549.00	415	$    20.60	$       8,549.00	0	$    20.60	$                   -
26-Oct	115	$    25.60	$    2,944.00	115	$    25.60	$       2,944.00	0	$    25.60	$                   -
			$                 -		$           -	$                    -	0	$           -	$                   -
TOTAL	1065		$ 18,764.00	840		$    16,329.00	225		$      2,435.00

Ending Inventory = 225 unit valued at $ 2,435

Cost of Goods Sold = 840 units of $ 16,329

• Requirement ‘c’ along with working

---Gross Margin as per FIFO

Sales	Units	Rate	Amount
Jan-10	180	$     40.60	$    7,308.00
Mar-15	260	$     40.60	$ 10,556.00
Oct-05	400	$     40.60	$ 16,240.00
Total	840		$ 34,104.00
(-) Cost of Goods Sold calculated in Requirement ‘a’	840		$ 13,554.00
Gross Margin			$ 20,550.00   [60.26%]

---Gross Margin as per LIFO

Sales	Units	Rate	Amount
Jan-10	180	$     40.60	$    7,308.00
Mar-15	260	$     40.60	$ 10,556.00
Oct-05	400	$     40.60	$ 16,240.00
Total	840		$ 34,104.00
(-) Cost of Goods Sold calculated in requirement ‘b’	840		$ 16,329.00
Gross Profit			$ 17,775.00 [52.12%]