Problem 6-59A Inventory Costing Methods OBJECTIVE 3 4 6 Gavin Products uses a pe

Question

Problem 6-59A Inventory Costing Methods OBJECTIVE 3 4 6 Gavin Products uses a perpetual inventory system. For 2010 and 2011, Gavin has the following data: Activity Units Purchase Price (per unit) Sale Price (per unit) 2010 Beginning inventory 200 $ 9 Purchase 1, Feb. 15 300 11 Sale 1, Mar. 10 320 $25 Purchase 2, Sept. 15 500 12 Sale 2, Nov. 3 550 25 Purchase 3, Dec. 20 150 13 2011 Sale 3, Apr. 4 200 25 Purchase 4, June 25 200 14 Sale 4, Dec. 18 150 25 View PDF Required: For each year, compute cost of goods sold, the cost of ending inventory, and gross margin using FIFO. For each year, compute cost of goods sold, the cost of ending inventory, and gross margin using LIFO. For each year, compute cost of goods sold, the cost of ending inventory, and gross margin using the average cost method. (Note: Use four decimal places for per-unit calculations and round all other numbers to the nearest dollar.) Conceptual Connection: Which method would result in the lowest amount paid for taxes?

Explanation / Answer

FIFO Method
For 2010

Cost of goods sold(in units)=200 beginning inventory+950 purchases-280 closing inventory=870 units

Cost of ending inventory=130 units@$12+150 units@$13
=$3510

Gross margin=Sales 320 units@25+550 units@25=$21750
   COGS(200@ $9+120@ $11+180@ $11+370@ $12)=$9540
   Gross margin=$12210

For 2011

cost of goods sold(in units)=280 opening+ 200 purchased-130 closing=350 units

Cost of closing inventory=130 units@ $14=$1820

Gross margin=sales( 200@ $25+150 @ $25)=$8750
   COGS(130@ $12+150@ $13+70@ $14)=$4490
Gross margin=$4260

LIFO Method
For 2010

Cost of goods sold(in units)=200 beginning inventory+950 purchases-280 closing inventory=870 units

Cost of ending inventory=130 @ $9+150 @ $13=$3120

Gross margin=Sales( 320 units@25+550 units@25)=$21750
   COGS(300 @ $11+20 @ $9+500 @ $12+50 @ $9)=$9930
Gross margin=$11820

For 2011

cost of goods sold(in units)=280 opening+ 200 purchased-130 closing=350 units

Cost of ending inventory=50@ $14+80@ $9=$1420

Gross margin=sales( 200@ $25+150 @ $25)=$8750
   COGS(150@ $13+50@ $9+150@ +$14)=$4500
Gross margin=$4250

Quantity change(units) unit cost($) total cost($) opening inventory +200 $9 1800 Puchases 1 +300 $11 3300 Sales 1 -320 $25 Purchases 2 +500 $12 6000 Sales 2 -550 $25 Purchase 3 +150 $13 1950 Ending inventory =280

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