Question

During the year, Hayward Corp, sold shoes for $35 per pair. At the end of the year, 5000 pairs of shoes remain unsold. facts related to the beginning inventory and purchases are as follows:

Beginning inventory 4000 pairs @ $13

February 1- Purchase 7000 pairs @ $14

May 1 Purchase 5000 pairs @ $15

August 1 Purchase 3000 pairs @ $16

November 1 Purchase 6000 pairs @ $17

Using LIFO method of determining cost of goods sold, what is Gross Margin?

a) $66,000

b) $300,000

c) $309,000

d) $391,000(answer)

e) $410,000

answer: D

I know the answer is "D" but i want to know how to solve it and would appreciate your help. thanks in advance!

Answer 1

	Units ( i.e.Pairs of shoes )
Beginning inventory	4,000
February 1 - Purchases	7,000
May 1 - Purchases	5,000
August 1 - Purchases	3,000
November 1 - Purchases	6,000
Total pairs of shoes available for sale	25,000

Here, 5,000 pairs of shoes remained unsold, which will be in the ending inventory.

Pairs of shoes sold = Total pairs of shoes available for sale - Ending inventory of pairs of shoes = 25,000 - 5,000 = 20,000

Here, LIFO ( i.e. Last In First Out ) method is used, in which those goods are sold first that are purchased last. Means here the total 20,000 pairs that are sold will be counted from the recent purchases made by Hayward Corp.

Cost of goods sold = [ 6,000 pairs * $17 ] + [ 3,000 pairs * $16 ] + [ 5,000 pairs * $15 ] + [ 6,000 pairs * $14 ] = $309,000

Gross margin = Sales - Cost of goods sold = [ 20,000 pairs of shoes * $35 ] - $309,000 = $391,000