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 and sales transactions.

Date Activities Units Acquired at Cost Units Sold at Retail
Jan. 1 Beginning inventory 600 units @ $ 44 /unit
Feb. 10 Purchase 200 units @ $ 40 /unit
Mar. 13 Purchase 100 units @ $ 20 /unit
Mar. 15 Sales 400 units @ $ 75 /unit
Aug. 21 Purchase 160 units @ $ 60 /unit
Sept. 5 Purchase 280 units @ $ 48 /unit
Sept. 10 Sales 200 units @ $ 75 /unit



Totals 1,340 units 600 units




Required:
1.
Compute cost of goods available for sale and the number of units available for sale.

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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