Ross Sales had the following transactions for DVDs in 2010, its first year of op
ID: 2422674 • Letter: R
Question
Ross Sales had the following transactions for DVDs in 2010, its first year of operations. Date Transaction Description Amounts Jan. 20 Purchased 75 units @ $15 = $1,125 Apr. 21 Purchased 450 units @ $20 = 9,000 July 25 Purchased 300 units @ $23 = 6,900 Sept. 19 Purchased 100 units @ $26 = 2,600
During the year, Ross Sales sold 850 DVDs for $60 each.
Requirement 1: Compute the amount of ending inventory Ross would report on the balance sheet, assuming the following cost flow assumptions.
FIFO=
LIFO=
Weighted Avg.=
Requirement 2: A)Compute the gross margin for the following cost flow assumptions:FIFO and LIFO
FIFO=
LIFO=
B)Compute the difference in gross margin between the FIFO and LIFO cost flow assumptions.
Difference in gross margin=
Explanation / Answer
Requirement 1:
Computation of ending inventory:
FIFO:
Date
Beginning Inventory
Purchases
Sales
Ending Inventory
Qty
Cost
Value
Qty
Cost
Value
Qty
Price
Value
Qty
Cost
Value
Jan 20
75
15
1125
75
60
4500
Apr 21
450
20
9000
450
60
27000
Jul 25
300
23
6900
300
60
18000
Sep 19
100
26
2600
25
60
1500
75
26
1950
925
19625
850
60
51000
75
26
1950
LIFO:
Date
Beginning Inventory
Purchases
Sales
Ending Inventory
Qty
Cost
Value
Qty
Cost
Value
Qty
Price
Value
Qty
Cost
Value
Jan 20
75
15
1125
75
15
1125
Apr 21
450
20
9000
450
60
27000
Jul 25
300
23
6900
300
60
18000
Sep 19
100
26
2600
100
60
6000
925
19625
850
60
51000
75
15
1125
Weighted Average:
Date
Beginning Inventory
Purchases
Sales
Ending Inventory
Qty
Cost
Value
Qty
Cost
Value
Qty
Price
Value
Qty
Cost
Value
Jan 20
75
15
1125
75
60
4500
Apr 21
450
20
9000
450
60
27000
Jul 25
300
23
6900
300
60
18000
Sep 19
100
26
2600
25
60
1500
75
21.2162
1591.215
925
19625
850
60
51000
75
21.2162
1591.215
Average Cost = 19625 / 925 = $21.2162
Ending Inventory:
FIFO = $1950
LIFO = $1125
Weighted Average = $1591.215
Requirement 2:
A)Computation of Gross Margin:
FIFO:
Cost of Goods Sold
= Purchases – Closing Stock
= $19625 - $1950
= $17675
Gross Profit
= Sales – Cost of Goods Sold
= $51000 - $17675
= $33325
Gross Margin = Gross Profit / Sales
= 33325 / 51000
= 0.6534
LIFO:
Cost of Goods Sold
= Purchases – Closing Stock
= $19625 - $1125
= $18500
Gross Profit
= Sales – Cost of Goods Sold
= $51000 - $18500
= $32500
Gross Margin = Gross Profit / Sales
= 32500 / 51000
= 0.6372
Gross Margin:
FIFO = 65.34%
LIFO = 63.72%
B)Computation of difference in Gross Margin between LIFO and FIFO:
Difference in Gross Margin between LIFO and FIFO
= Gross Margin of FIFO – Gross Margin of LIFO
= 65.34% - 63.72%
= 1.62%
Difference in Gross Margin = 1.62%
Date
Beginning Inventory
Purchases
Sales
Ending Inventory
Qty
Cost
Value
Qty
Cost
Value
Qty
Price
Value
Qty
Cost
Value
Jan 20
75
15
1125
75
60
4500
Apr 21
450
20
9000
450
60
27000
Jul 25
300
23
6900
300
60
18000
Sep 19
100
26
2600
25
60
1500
75
26
1950
925
19625
850
60
51000
75
26
1950
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