Question

Blue Bird Corporation has the following inventory items and costs for the month.
1 unit purchased Jan 15 at a cost of $50.
1 unit purchased Jan 20 at a cost of $54.
1 unit purchased Jan 24 at a cost of $56
On January 26, the company sold 2 units for $70 each. The company uses the LIFO (Last In First Out) inventory method.
a. What is the Cost of Goods Sold for the month? $
b. What is Gross Margin for the month? $
c. What is ending inventory for the month? $

2. Framer Inc. has the following inventory items and costs for the month.
1 unit purchased Jan 15 at a cost of $60.
1 unit purchased Jan 20 at a cost of $45.
1 unit purchased Jan 24 at a cost of $54
On January 26, the company sold 2 units for $70 each. The company uses the Weighted Average inventory method.
a. What is the Cost of Goods Sold for the month? $
b. What is Gross Margin for the month? $
c. What is ending inventory for the month? $

Answer 1

1.a.

As per LIFO inventory method the latest inventory is used first. So two units purchased on January 24 and January 20 is sold first.

Cost of Goods Sold = $ 56 + $ 54 = $ 110

b.

Gross margin = Sales revenue - Cost of goods sold = ($ 70 x 2) - $ 110 = $ 140 - $ 110 = $ 30

c.

The units purchased on January 15 remains as ending inventory.

Ending inventory is $ 50.

2.a.

As per Weighted Average Method, cost of goods available to sell is computed as:

Cost of goods available = Total cost/Number of units

                                          = ($ 60 + $ 45 + $ 54)/3 = $ 159/3 = $ 53 per unit

b.

Gross margin = Sales revenue - Cost of goods sold = ($ 70 x 2) – ($ 53 x 2) = $ 140 - $ 106 = $ 34

c.

Ending inventory is $ 53 as there is one unit left in the inventory after sales.