Required: Determine the costs assigned to ending inventory and to cost of goods

Question

  
Required:

   

Determine the costs assigned to ending inventory and to cost of goods sold using FIFO.

Hemming Co. repo Date Activities Units Acquired at Cost Units Sold at Retail Jan. 1 Beginning inventory 140 units @ $11.60 = $ 1,624 Jan. 10 Sales 130 units @$41.60 Mar. 14 Purchase 290 units @ $16.60 = 4,814 Mar. 15 Sales 180 units @$41.60 July 30 Purchase 440 units @ $21.60 = 9,504 Oct. 5 Sales 260 units @$41.60 Oct. 26 Purchase 640 units @ $26.60 = 17,024     Totals 1,510 units $ 32,966 570 units

  
Required:

Hemming uses a periodic inventory system.

   

(a)

Determine the costs assigned to ending inventory and to cost of goods sold using FIFO.

(b) Determine the costs assigned to ending inventory and to cost of goods sold using LIFO. (c) Compute the gross margin for each method. rted the following current-year purchases and sales data for its only product.

Explanation / Answer

Since, Hemming uses a periodic inventory system, all the calculations will be made at the end of the year and not as and when a purchase or sale transaction occurs.

Using the information provided in the question, we get,

Ending Inventory (Units) = (Beginning Inventory + Units Procured) - Sales = 1,510 - 570 = 940 units

_____________

Part a)

Under FIFO method, the units procured first are sold first. Therefore, the ending inventory will comprise of most latest units. The cost of ending inventory is calculated as follows:

Cost of Ending Inventory = 640*26.60 (From October 26 Purchase) + 300*21.60 (From July 30 Purchase) = $23,504

Cost of Goods Sold = 140*11.60 (Opening Inventory) + 290*16.60 (From March 14 Purchase) + 140*21.60 (From July 30 Purchase) = $9,462

___________

Part B)

Under LIFO method, the units procured last are sold first. Therefore, the ending inventory will comprise of most earlier units. The cost of ending inventory is calculated as follows:

Cost of Ending Inventory = 140*11.60 (From Opening Inventory) + 290*16.60 (From March 14 Purchase) + 440*21.60 (From July 30 Purchase) + 70*26.60 (From October 26 Purchase) = $17,804

Cost of Goods Sold = 570*26.60 (From October 26 Purchase) = $15,162

___________

Part C)

Gross margin is the difference between sales and cost of goods sold.

Total Sales Value = 570*41.60 = $23,712

____________

Gross Margin (FIFO) = 23,712 - 9,462 = $14,250

Gross Margin (LIFO) = 23,712 - 15,612 = $8,550

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.