Question

Required information Exercise 5-20 Effect of inventory cost flow on ending inventory balance and gross margin LO 5-6 The following information applies to the questions displayed below.] The Shirt Shop had the following transactions for T-shirts for 2018, its first year of operations: Jan. 20 Purchased Apr. 21 Purchased July 25 Purchased Sept. 19 Purchased 400 units 90 units 250 units 60 units @ @ @ @ $ 4 = $1,600 $5 = 450 $ 7 = 1,750 $ 9 = 540 During the year, The Shirt Shop sold 650 T-shirts for $14 each.

Answer 1

Requirement a

	FIFO	LIFO	Weighted Average
Ending Inventory	$                 1,170	$                       600	$                 815

Requirement b

	FIFO	LIFO	Difference
Gross profit	$           5,930.00	$             5,360.00	$           570.00

Working

	Units	Cost per unit	value
Beginning Balance			$ 0
Purchases
	400	$                     4.00	$ 1,600
	90	$                     5.00	$ 450
	250	$                     7.00	$ 1,750
	60	$                     9.00	$ 540
Total	800		$ 4,340

.

Average Cost of Inventory
Units	(A)	800
Total Cost	(B)	$ 4,340
Average Cost	(C=B/A)	$                     5.43

.

FIFO
Total Units Available for sale		800
Units Sold		650
Closing Stock in Units		150
Valuation
Ending Inventory	60	@	$               9.00	$ 540
	90	@	$               7.00	$ 630
Value Of Ending Inventory				$ 1,170
Cost of Goods sold				$ 3,170
LIFO
Total Units Available for sale		800
Units Sold		650
Closing Stock in Units		150
Valuation
Ending Inventory	150	@	$               4.00	$ 600
	0	@	$             17.00	$ 0
Value Of Ending Inventory				$                  600
Cost of Goods sold	4340 minus 600			$              3,740
Weighted Average method
Total Units Available for sale		800
Units Sold		650
Closing Stock in Units		150
Valuation
Ending Inventory	150	@	$               5.43	$                  815
Value Of Ending Inventory				$                  815
Cost of Goods sold	(Total Purchase and opening stock Minus Closing Stock)			$              3,526

	FIFO	LIFO	Difference
Sales revenue	$           9,100.00	$             9,100.00
Cost of goods sold	$           3,170.00	$             3,740.00
Gross profit	$           5,930.00	$             5,360.00	$           570.00