Question

Required information [The following information applies to the questions displayed below.) Hemming Co. reported the following current-year purchases and sales for its only product. Units Sold at Retail Units Acquired at Cost 200 units @ $10 = $ 2,000 150 units @ $40 350 units @ $15 = 5,250 Date Activities Jan. 1 Beginning inventory Jan. 10 Sales Mar. 14 Purchase Mar. 15 Sales July 30 Purchase Oct. 5 Sales Oct. 26 Purchase Totals 300 units @ $40 @ $20 @ $25 450 units 100 units 1,100 units = = 430 units @ $40 9,000 2,500 $18,750 880 units Required: Hemming uses a periodic inventory system. (a) Determine the costs assigned to ending inventory and to cost of goods sold using FIFO. (b) Determine the costs assigned to ending inventory and to cost of goods sold using LIFO. (c) Compute the gross margin for each method.

Answer 1

a) Periodic FIFO Cost of goods Available for sale Cost of goods No of Cost per Available for units 1 unit sale 200 10.00 2000 Cost of Goods sold No of Cost per cost of goods units unit sold 2000 10.00 10.00 2000 Ending Inventory No of Cost per Ending units unit Inventory 0 10.00 350 15.00 Beginning inventory Purchases: Mar-14 Jul-30 Oct-26 Total 15.00 20.00 25.00 330 350 450 100 11001 5250 9000 2500 18750 15.00 20.00 25.00 20.00 5250 6600 0 13850 0 120 100 25.00 2400 2500 4900 880 220 b) Periodic LIFO Cost of Goods sold Ending Inventory Cost of goods Available for sale No of Cost of goods Cost per Available for units unit sale 200 10.00 2000 No of units Cost per unit Cost of goods sold No of units Cost per unit Ending Inventory 10.00 200 10.00 2000 20 15.00 300 Beginning inventory Purchases: Mar-14 Jul-30 Oct-26 Total 3501 450 100 1100 15.00 20.00 25.00 330 450 5250 9000 2500 18750 15.00 20.00 25.00 4950 9000 2500 16450 20.00 25.00 100 880 220 2300

C) Gross margin Sales revenue Less: Cost of goods sold Gross margin FIFO 35200 13850 21350 LIFO 35200 16450 18750