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saved Help The Shirt Shop had the following transactions for T-shirts for 2018, its first year of operations: 2 of 2 Jan. 20
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a. ENDING INVENTORY

First-in, First-out Last-in, first-out Weighted Average $ 1,620 $ 1,020 $ 1,238 Ending Inventory

Ending inventory = Beginning inventory + Purchases - Sales = 0 units + (460+120+220+90) units - 720 units = 170 units

FIRST-IN, FIRST OUT METHOD Ending Inventory Units Total Jan 20 Purchase Apr 21 Purchase Jul 25 Purchase Sep 19 Purchase Cost

LAST-IN, FIRST OUT METHOD Ending Inventory Units Total 170 $ 1,020.00 Jan 20 Purchase Apr 21 Purchase Jul 25 Purchase Sep 19

WEIGHTED AVERAGE METHOD Ending Inventory Units Total Cost of Goods Sold Units Total Jan 20 Purchase Apr 21 Purchase Jul 25 Pu

Cost of Goods Available (A) Number of units available for sale (B) Weighted Avg Cost per Unit (A) = (B) $ 6,480.00 890 $ 7.28

b. DIFFERENCE IN GROSS MARGIN UNDER FIFO AND LIFO ASSUMPTIONS

  • Gross margin = Sales - Cost of goods sold
  • Difference Sales revenue Less: Cost of Goods Sold Gross Margin FIFO $ 10,800.00 $ 4,860.00 $ 5,940.00 LIFO $ 10,800.00 $ 5,46

Sales revenue = 720 t-shirts × $15 = $10,800

FIFO: Under this method of inventory valuation, the oldest purchased inventory items are recorded as sold first in the books of accounts. That is, the ending inventory will always reflect the most recent purchase cost.

LIFO: Under this method of inventory valuation, the latest purchased inventory items are recorded as sold first in the books of accounts. That is, the ending inventory will be valued at the earliest purchase cost.

Weighted Average Cost: Under this method, the ending inventory is valued at the weighted average cost per unit.

  • Weighted average cost per unit = Cost of inventory available for sale ÷ Number of units available for sale
  • Cost of inventory available for sale = Beginning inventory + net purchases
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