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

200

units

@ $10

=

$

2,000

Jan.

10

Sales

150

units

@ $40

Mar.

14

Purchase

350

units

@ $15

=

5,250

Mar.

15

Sales

300

units

@ $40

July

30

Purchase

450

units

@ $20

=

9,000

Oct.

5

Sales

430

units

@ $40

Oct.

26

Purchase

100

units

@ $25

=

2,500

Totals

1,100

units

$

18,750

880

units

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

1. Determine the costs assigned to ending inventory and to cost of goods sold using FIFO.

Ending inventory units = 1100-880 = 220 Units

Cost of ending inventory = (100*25+120*20) = 4900

Cost of goods sold = 18750-4900 = 13850

2. Determine the costs assigned to ending inventory and to cost of goods sold using LIFO.

Cost of ending inventory = (50*10+50*15+20*20+100*25) = 4150

Cost of goods sold = 18750-4150 = 14600

3. Compute the gross margin for FIFO method and LIFO method.

FIFO gross margin = (880*40)-13850 = 21350

LIFO gross margin = (880*40)-14600 = 20600