Question

Fermento sells a wine it purchases from a local brewer. Fermento stocked up on the wine throughout the year, preparing for a special millenium sales event in late December. On January 1, Fermento had 85 bottles on hand that cost $10 each. They also made the following purchases: 15 bottles for $9 each on Mar. 28 20 bottles for $7 each on Sep. 14 80 bottles for $12 each on Nov. 5 Fermento's sales were as follows: 11 from the beginning inventory 10 from the Mar. 28 purchase 15 from the Sep. 14 purchase 18 from the Nov. 5 purchase All of the wine was sold for $27 per bottle. Assume Fermento uses LIFO for inventory costing. What was Fermento's cost of goods available for sale for the year? What was Fermento's cost of ending inventory for the wine at December 312 What was Fermento's gross margin on the wine for the year? Assume Fermento uses FIFO for inventory costing. What was Fermento's cost of goods available for sale for the year? What was Fermento's gross margin on the wine for the year?

Answer 1

LIFO Periodic inventory System: In this system, the cost of sales and inventory are determined as the end of the accounting period. Last in, first out method (LIFO): In this method it is assumed that inventory which is purchased last will be sold first and the inventory will consist of old purchases. Cost of Good Available for sale for the year Cost of ending inventory Dec 31 Gross Margin $2,085 $1,437 55.56% Unit Rate Amount $850 15 Date Jan 1 Mar 28 Sep 14 Nov 5 Cost of Good Available for sale $10 $9 $7 $12 $135 $140 $960 $2,085 Cost of Goods Sold Date Nov 5 Unit Rate Amount $648 54 $12 Ending Inventory Date Nov 5 Sep 14 Mar 28 Jan 1 Unit 26 20 Rate $12 $7 Amount $312 $140 $135 $850 $1,437 59 85 $ 10 54 $648 146 Sales [54 x $27] Less: Cost of Good sold Gross Profit Gross Margin ($810/$1458] $1,458 ($648) $810 55.56%

FIFO First in, first out method (FIFO): In this method it is assumed that inventory which is purchased first will be sold first and the inventory will consist of recent purchases. Cost of Good Available for sale for the year $2,085 Gross Margin 62.96% Date Unit Rate L Amount Jan 1 85 $10 $850 Mar 28 15 $9 $135 Sep 14 20 $140 Nov 5 $12 $960 Cost of Good Available for sale 200 $2,085 Cost of Goods Sold Date Unit Rate Amount Jan 1 54 $10 $540 54 $540 $7 Sales [54 x $27] Less: Cost of Good sold Gross Profit Gross Margin ($918/$1458] $1,458 ($540) $918 62.96%