Marlow Company uses a perpetual inventory system. It entered into the following

Question

Marlow Company uses a perpetual inventory system. It entered into the following calendar-year 2011 purchases a?
Marlow Company uses a perpetual inventory system. It entered into the following calendar-year 2011 purchases a?
Marlow Company uses a perpetual inventory system. It entered into the following calendar-year 2011 purchases and sales transactions.

Date Activities Units Acquired at Cost Units Sold at Retail
Jan. 1 Beginning inventory 770 units @ $ 47.40 /unit
Feb. 10 Purchase 370 units @ $ 43.40 /unit
Mar. 13 Purchase 185 units @ $ 23.40 /unit
Mar. 15 Sales 655 units @ $ 78.40 /unit
Aug. 21 Purchase 330 units @ $ 63.40 /unit
Sept. 5 Purchase 195 units @ $ 51.40 /unit
Sept. 10 Sales 115 units @ $ 78.40 /unit

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Explanation / Answer

1. Compute cost of goods available for sale and the number of units available for sale $59,440; 1,340 units 2. Compute the number of units in ending inventory. 740 units 3. Compute the cost assigned to ending inventory using (a) FIFO $33,040, (b) LIFO $35,440, (c) specific identification $35,440 (d) weighted average $34,055. 4. Compute the gross profit earned by the company for each of the four costing methods in part 3. Gross profit FIFO $18,600 Gross profit LIFO $21,000 Gross profit SI $21,000 Gross profit WA $19,615 Analysis Component 5. If the company’s manager earns a bonus based on a percent of gross profit, which method of inventory costing will the manager likely prefer? The manager will likely prefer either the LIFO or Specific Identification methods since both give a higher gross profit than the other 2 mthds and his bonus will accordingly be higher.

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