Question

Hemming Co. reported the following current-year purchases and sales for its only product.
    

Date

Activities

Units Acquired at Cost

Units Sold at Retail

Jan.

1

Beginning inventory

260

units

@ $12.40

=

$

3,224

Jan.

10

Sales

215

units

@ $42.40

Mar.

14

Purchase

420

units

@ $17.40

=

7,308

Mar.

15

Sales

380

units

@ $42.40

July

30

Purchase

460

units

@ $22.40

=

10,304

Oct.

5

Sales

425

units

@ $42.40

Oct.

26

Purchase

160

units

@ $27.40

=

4,384

Totals

1,300

units

$

25,220

1,020

units

Required: Hemming uses a perpetual inventory system.    1. Determine the costs assigned to ending inventory and to cost of goods sold using FIFO. 2. Determine the costs assigned to ending inventory and to cost of goods sold using LIFO. 3. Compute the gross margin for FIFO method and LIFO method. Required: Hemming uses a perpetual inventory system. Assume that ending inventory is made up of 45 units from the March 14 purchase, 75 units from the July 30 purchase, and all 160 units from the October 26 purchase. Using the specific identification method, calculate the following.

Perpetual FIFO: Goods Purchased Cost of Goods Sold Inventory Balance Cost Cost of Goods Sold # of Cost # of units Cost Inventory Balance # of units Date units sold per unit per unit per unit January 1 260 @ S 3,224.00 S12.40 $ 9,116.00 January 10 $42.40 S12.40 215 S17.40 S 12,40 March 14 420 S 17.40 March 15 July 30 October 5 October 26 Totals $ 9,116.00 Perpetual LIFO: Goods Purchased Cost of Goods Sold Inventory Balance # of Cost Cost # of units Cost Cost of Goods Inventory # of units Date Sold Balance units. per unit sold per unit per unit January 1 260 S12.40 S 3.224.00 January 10 March 14 March 15 July 30 October 5 October 26, Totals S 0.00 Compute the gross margin for FIFO method and LIFO method. FIFO: LIFO: Sales revenue Less: Cost of goods sold Gross margin Required 2 Required 3 a) Cost of Goods Sold using Specific Identification Cost of Goods Sold Available for Sale Ending Inventory Ending Ending Inventory Cost Unit Units Activity Unit Cost COGS Date Units Inventory Unit Cost Cost Sold Units Jan. 1 Beginning Inventory S 0.00 S 260 0 0.00 Purchase S 0.00 Mar. 14 420 0 0.00 July 30 S 0.00 Purchase 460 0.00 Oct. 26 Purchase S 16D S 0.00 0.00 1,300 0 b) Gross Margin using Specific Identification Less: Equals:

Answer 1

Correct Answer:

Requirement 1

Perpetual FIFO
Date	Goods Purchased			Cost of Goods Sold			Inventory Balance
	# of Units	Cost Per Unit	Cost of Goods Available for sale	# of Units Sold	Cost per Unit	Cost of Goods Sold	# of Units	Cost per Unit	Inventory Balance
01-Jan			$                      -				260	$               12.40	$                       3,224.00
10-Jan				215	$    12.40	$      2,666.00	45	$               12.40	$                           558.00
14-Mar	420	$             17.40	$        7,308.00				45	$               12.40	$                           558.00
							420	$               17.40	$                       7,308.00
15-Mar				45	$    12.40	$          558.00	85	$               17.40	$                       1,479.00
				335	$    17.40	$      5,829.00
30-Jul	460	$             22.40	$       10,304.00				85	$               17.40	$                       1,479.00
							460	$               22.40	$                     10,304.00
05-Oct				85	$    17.40	$      1,479.00	120	$               22.40	$                       2,688.00
				340	$    22.40	$      7,616.00
26-Oct	160	$             27.40	$         4,384.00				120	$               22.40	$                       2,688.00
							160	$               27.40	$                       4,384.00
totals
				1020		$    18,148.00	280		$                       7,072.00

Requirement 2:

Perpetual LIFO
Date	Goods Purchased			Cost of Goods Sold			Inventory Balance
	# of Units	Cost Per Unit	Cost of Goods Available for sale	# of Units Sold	Cost per Unit	Cost of Goods Sold	# of Units	Cost per Unit	Inventory Balance
01-Jan			$                   -				260	$                             12.40	$                                3,224.00
10-Jan				215	$                      12.40	$      2,666.00	45	$       12.40	$  558.00
14-Mar	420	$            17.40	$      7,308.00				45	$    12.40	$     558.00
							420	$       17.40	$      7,308.00
15-Mar				380	$                      17.40	$      6,612.00	45	$      12.40	$      558.00
							40	$ 17.40	$    696.00
30-Jul	460	$            22.40	$    10,304.00				45	$   12.40	$     558.00
							40	$ 17.40	$    696.00
							460	$  22.40	$  10,304.00
05-Oct				425	$                      22.40	$      9,520.00	45	$    12.40	$    558.00
							40	$     17.40	$     696.00
							35	$    22.40	$   784.00
26-Oct	160	$            27.40	$      4,384.00				45	$   12.40	$     558.00
							40	$   17.40	$          696.00
							35	$        22.40	$    784.00
							160	$       27.40	$       4,384.00
totals				1020		$   18,798.00	280		$                                6,422.00

Requirement 3 : Gross Margin for FIFO and LIFO Method

	FIFO	LIFO
sales revenue	$                  43,248.00	$             43,248.00
Less : Cost of Goods sold	$                  18,148.00	$             18,798.00
Gross Margin	$                  25,100.00	$             24,450.00

Working:

Sales Revenue
date	units	selling price per unit	revenue
10-Jan	215	42.4	$            9,116
15-Mar	380	42.4	$         16,112
05-Oct	425	42.4	$         18,020
Total sales revenue			$         43,248

Requirement 4:

Cost of Goods sold using specific identifications
	Available for sale			Cost of Goods Sold			Ending Inventory
Date	Activity	units	unit cost	units sold	unit cost	COGS	Ending Inventory Units	unit cost	Ending inventory cost
01-Jan	Beginning Inventory	260	$    12.40	260	$    12.40	$      3,224.00	0	$        12.40	$                            -
14-Mar	Purchase	420	$    17.40	375	$    17.40	$      6,525.00	45	$        17.40	$                   783.00
30-Jul	Purchase	460	$    22.40	385	$    22.40	$      8,624.00	75	$        22.40	$               1,680.00
26-Oct	Purchase	160	$    27.40	0	$    27.40	$                   -	160	$        27.40	$               4,384.00
Total		1300		1020		$   18,373.00	280		$               6,847.00

Gross Margin using special Indications
	Total Revenue	$            43,248
Less	Cost of Goods sold	$            18,373
Equals	Gross Margin	24,875

End of Answer.

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Thanks.