Homework Answers
Under the First in first out (FIFO) method of inventory valuation, Cost of goods sold consists of the units from beginning inventory and earliest purchases. Ending inventory consists of the units from recent purchases.
Cost of goods sold = $1,200 + $2,040 + $1,050 ($2,100/140*70)
= $4,290
Gross margin = Sales - Cost of goods sold
= [(430 - 70) * $27] - $4,290
= $5,430
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Under the Last in first out (LIFO) method of inventory valuation, Cost of goods sold consists of the units from recent purchases. Ending inventory consists of the units from beginning inventory and earliest purchases.
Cost of goods sold = $2,100 + $2,040 + $500 ($1,200 / 120 * 50)
= $4,640
Gross margin = Sales - Cost of goods sold
= [(430 - 70) * $27] - $4,640
= $5,080
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Under the Weighted average method of inventory valuation both Cost of goods sold and Ending inventory are valued at average unit cost.
Weighted average cost per unit = Cost of units available for sale / Number of units available for sale
= $5,340 / 430
= $12.42
Gross margin = Sales - Cost of goods sold
= [(430 - 70) * $27] - [(430 - 70) * $12.42]
= $5,249 (rounded to 0 decimal places)
| Gross Margin | ||
| A. | First-in, First-out (FIFO) | $5,430 |
| B. | Last-in, First-out (LIFO) | $5,080 |
| C. | Weighted Average (AVG) | $5,249 |
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