Question

You are the vice president of finance of Swifty Corporation, a retail company that prepared two different schedules of gross margin for the first quarter ended March 31, 2017. These schedules appear below. Cost of Goods Sold Sales Gross ($5 per unit) Margin $151,400 $133,398 $18,002 Schedule 1 139,622 11,778 Schedule 2 151,400 The computation of cost of goods sold in each schedule is based on the following data Cost Total Units Cost per Unit Beginning inventory, January 1 $4.30 11,150 $47,945 Purchase, January 10 9,150 4.40 40,260 Purchase, January 30 7,150 4.50 32,175 Purchase, February 11 10,150 4.60 46,690 4.70 57,105 Purchase, March 17 12,150 Jane Torville, the president of the corporation, cannot understand how two different gross margins can be computed from the same set of data. As the vice president of finance, you have explained to Ms. Torville that the two schedules are based on different assumptions concerning the flow of inventory costs, i.e., FIFO and LIFO. Schedules 1 and 2 were not necessarily prepared in this sequence of cost flow assumptions.

Answer 1

Number of units available for sale = 11,150 + 9,150 + 7,150 + 10,150 + 12,150
Number of units available for sale = 49,750

Number of units sold = Sales / Selling price per unit
Number of units sold = $151,400 / $5
Number of units sold = 30,280

Number of units in ending inventory = Number of units available for sale - Number of units sold
Number of units in ending inventory = 49,750 - 30,280
Number of units in ending inventory = 19,470

Swifty Corporation Schedules of Cost of Goods Sold For the First Quarter Ended March 31, 2017 Schedule 1 Schedule 2 47,945 $ 176,230 $ Beginning Inventory Add: Purchases Cost of Goods Available for Sale Less: Ending Inventory Cost of Goods Sold 47,945 176,230 224,175 $ 90,777$ 133,398 $ $ 224,175 84,553 139,622 Schedules Computing Ending Inventory First-in, First-out (Schedule 1) 7,320 at $ 12,150 at $ 33,672 4.60 4.70 57,105 $ 19,470 90,777 Last-in, First-out (Schedule 2) 11,150 at $ 8,320 at $ 4.30 47,945 $ $ 36,608 4.40 84,553 19,470