Question

The Shirt Shop had the following transactions for T-shirts for 2018, its first year of operations:

Jan. 20 Purchased 420 units @ $ 9 = $ 3,780

Apr. 21 Purchased 150 units @ $ 10 = 1,500

July 25 Purchased 230 units @ $ 12 = 2,760

Sept. 19 Purchased 80 units @ $ 13 = 1,040

During the year, The Shirt Shop sold 730 T-shirts for $18 each. Compute the difference in GROSS MARGIN between the FIFO and LIFO cost flow assumptions

Answer 1

Sales revenue	=	730 T shirts X $18
		$ 13,140
As per FIFO					Cost of Goods sold
Jan-20	Purchased	420	$             9	$       3,780	420	$             9	$    3,780
Apr-21	Purchased	150	$           10	$       1,500	150	$          10	$    1,500
Jul-25	Purchased	230	$           12	$       2,760	160	$          12	$    1,920
Sep-16	Purchased	80	$           13	$       1,040	0	$          13	$           -
	Total			$       9,080	730		$    7,200
Gross Margin	=	Sales revenue - cost of goods sold
	=	$13,140 - $7,200
	=	$    5,940
As per LIFO					Cost of Goods sold
Jan-20	Purchased	420	$             9	$       3,780	270	$             9	$    2,430
Apr-21	Purchased	150	$           10	$       1,500	150	$          10	$    1,500
Jul-25	Purchased	230	$           12	$       2,760	230	$          12	$    2,760
Sep-16	Purchased	80	$           13	$       1,040	80	$          13	$    1,040
	Total			$       9,080	730		$    7,730
Gross Margin	=	Sales revenue - cost of goods sold
	=	$13,140 - $7,730
	=	$    5,410
Difference in Gross margin	=	Gross margin as per FIFO - Gross margin as per LIFO
	=	$5,940 - $5,410
	=	$ 530