Question

  
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

300

units

@ $14.00

=

$

4,200

Jan.

10

Sales

250

units

@ $44.00

Mar.

14

Purchase

520

units

@ $19.00

=

9,880

Mar.

15

Sales

460

units

@ $44.00

July

30

Purchase

500

units

@ $24.00

=

12,000

Oct.

5

Sales

480

units

@ $44.00

Oct.

26

Purchase

200

units

@ $29.00

=

5,800

Totals

1,520

units

$

31,880

1,190

units

Exercise 5-7 Perpetual: Inventory costing methods-FIFO and LIFO LO P1

Required:
Hemming uses a perpetual inventory system.
  
1. Determine the costs assigned to ending inventory and to cost of goods sold using FIFO.
2. Determine the costs assigned to ending inventory and to cost of goods sold using LIFO.
3. Compute the gross margin for FIFO method and LIFO method.

Answer 1

Ans. 1	FIFO:
	Purchase				Cost of goods sold			Balance
	Date	Quantity	Rate	Total cost	Quantity	Rate	Total cost	Quantity	Rate	Total cost
	1-Jan							300	$14.00	$4,200.00
	10-Jan				250	$14.00	$3,500.00	50	$14.00	$700.00
	14-Mar	520	$19.00	$9,880.00				50	$14.00	$700.00
								520	$19.00	$9,880.00
	15-Mar				50	$14.00	$700.00
					410	$19.00	$7,790.00	110	$19.00	$2,090.00
	30-Jul	500	$24.00	$12,000.00				110	$19.00	$2,090.00
								500	$24.00	$12,000.00
	5-Oct				110	$19.00	$2,090.00
					370	$24.00	$8,880.00	130	$24.00	$3,120.00
	26-Oct	200	$29.00	$5,800.00				130	$24.00	$3,120.00
								200	$29.00	$5,800.00
	Total				Cost of goods sold		$22,960	Cost of Ending inventory		$8,920
	*In FIFO method the units that have purchased first, are released the first one.
Ans. 2	LIFO:
	Purchase				Cost of goods sold			Balance
	Date	Quantity	Rate	Total cost	Quantity	Rate	Total cost	Quantity	Rate	Total cost
	1-Jan							300	$14.00	$4,200.00
	10-Jan				250	$14.00	$3,500.00	50	$14.00	$700.00
	14-Mar	520	$19.00	$9,880.00				50	$14.00	$700.00
								520	$19.00	$9,880.00
	15-Mar				460	$19.00	$8,740.00	50	$14.00	$700.00
								60	$19.00	$1,140.00
	30-Jul	500	$24.00	$12,000.00				50	$14.00	$700.00
								60	$19.00	$1,140.00
								500	$24.00	$12,000.00
	5-Oct				480	$24.00	$11,520.00	50	$14.00	$700.00
								60	$19.00	$1,140.00
								20	$24.00	$480.00
	26-Oct	200	$29.00	$5,800.00				50	$14.00	$700.00
								60	$19.00	$1,140.00
								20	$24.00	$480.00
								200	$29.00	$5,800.00
	Total				Cost of goods sold		$23,760	Cost of Ending inventory		$8,120
	*In LIFO method the units that have purchased last, are released the first one.
Ans. 3			FIFO	LIFO
	Sales		$52,360	$52,360
	Less: Cost of goods sold		-$22,960	-$23,760
	Gross margin		$29,400	$28,600
	Calculations for sales:
	Date	Units	Rate	Total
	10-Jan	250	$44	$11,000
	15-Mar	460	$44	$20,240
	5-Oct	480	$44	$21,120
	Total sales			$52,360