Question

The Shirt Shop had the following transactions for T-shirts for Year 1, its first year of operations: = = Jan. 20 Apr. 21 July 25 Sept. 19 Purchased Purchased Purchased Purchased 440 units 130 units 240 units 70 units @ @ @ @ $ 9 $11 $12 $13 $3,960 1,430 2,880 910 = = During the year, The Shirt Shop sold 710 T-shirts for $18 each. Required a. Compute the amount of ending inventory The Shirt Shop would report on the balance sheet, assuming the following cost flow assumptions: (1) FIFO, (2) LIFO, and (3) weighted average. b. Compute the difference in gross margin between the FIFO and LIFO cost flow assumptions. Complete this question by entering your answers in the tabs below. Required A Required B Compute the amount of ending inventory The Shirt Shop would report on the balance sheet, assuming the following cost flow assumptions: (1) FIFO, (2) LIFO, and (3) weighted average. (Round intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.) FIFO LIFO Weighted Average Ending inventory $ 2, 110

Answer 1

a)   COMPUTATION OF AMOUNT OF ENDING INVENTORY

1) Under FIFO

THE SHIRT SHOP

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DATE PURCHASED SOLD BALANCE

   Units Cost Amount Units Cost Amount Units Cost Amount

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Jan. 20 440 9 3,960 440 9 3960

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Apr.21 130 11 1,430 440 9 3960

130 11 1430

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July 25 240 12 2,880 440 9 3960

130 11 1430

240 12 2880

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Sept.19 70 13 910 440 9 3960

130 11 1430

240 12 2880

70 13 910

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Dec.31 440 9 3,960   

Dec.31    130 11 1430

Dec .31    140 12 1680 100 12 1200

70 13 910

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Cost of goods sold    7070     Closing Inventory   2110

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b) LIFO

DATE PURCHASES SALES BALANCE

Units Cost Amount Units Cost Amount Units Cost Amount

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Jan. 20 440 9 3,960   440 9 3,960

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Apr.21 130 11 1,430      440 9 3,960

  130 11 1,430

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July 25 240 12 2,880    440 9 3,960

  130 11 1,430

  240 12 2,880

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Sept.19 70 13 910   440 9 3,960

    130 11 1,430

240 12 2,880

240 12 2,880

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Dec.31 70 13 910

Dec.31 240 12 2880

Dec.31 130 11 1430

Dec.31 270 9 2430 170 9    1530  

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Cost of goods sold 7650   

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c)WEIGHTED AVERAGE

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DATE PURCHASED SOLD BALANCE

   Units Cost Amount Units Cost Amount Units Amount Cost

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Jan.20 440 9 3,960     440 3960 9

Apr.21 130 11 1430 570 5390 9.45

July.25 240 12 2880 810 8270 10.2

Sept .19 70 13 910 880 9180 10.43

Dec.31 710 10.43 7405.3 170 1773.1 10.43

Therefore closing inventory amount in Balance Sheet under 1) FIFO : 2110

2) LIFO :1530

3) WEIGHTED AVERAGE: 1773.1

2)Gross margin =Sales - Cost of goods Sold

FIFO =( 710 * 18 ) - 7070 = 5710 [cost of goods sold is From a) above]

LIFO =( 710 * 18) - 7650 = 5130 [Cost of goods sold is from b) above]

Difference between gross margins =5710 - 5130 = $ 580