Elston Company had a beginning inventory of 20°computers at a cost of $100 each.
ID: 2460491 • Letter: E
Question
Elston Company had a beginning inventory of 20°computers at a cost of $100 each. During the month, the following purchases and sales were made. August August August 4 15 28 250 pcs at $120 350 pcs at $140 200 pcs at $150 August 7 150 pcs August 11 100 pcs August 17 200 pcs August 24 200 pcs Elston uses a perpetual inventory system. Instructions: Determine ending inventory and cost of goods sold under (a) FIFO and (b) LIFO. (a) FIFO: Ending inventory-s , cost of goods sold $ gross margin (b) LIFO: Ending inventory $cost of goods sold-$ gross margin .Explanation / Answer
a)
Under FIFO, the closing stock is valued from the latest inventory and the old inventory forms part of cost of goods sold.
Under LIFO, the closing stock is valued from the oldest inventory and the latest inventory forms part of cost of goods sold.
Closing stock quantity = Opening stock + Purchases - Sales
= 20 + (250 + 350 + 200) - (150 + 100 + 200 + 200) = 170 units.
FIFO valuation:
The above closing stock of 170 units is from the August 28 purchases of 200 units at $150 per unit = 170 x $150 = $25,500
Cost of goods sold = Opening stock + Purchases - Closing stock
= 20 x $100 + (250 x $120 + 350 x $140 + 200 x $150) - $25,500
= $85,500
Gross Profit - Sales - Cost of goods sold
= (150+100+200+200) x $250 - $85,500
= $77,000
Gross margin = Gross Profit / Sales = $77,000 / $162,500 = 47.38%
b)
LIFO valuation:
The above closing stock of 170 units is from opening stock of 20 units at $100 and balance 150 units is from August 4 purchases of 250 units at $120 per unit = 20 x $100 + 150 x $120 = $20,000
Cost of goods sold = Opening stock + Purchases - Closing stock
= 20 x $100 + (250 x $120 + 350 x $140 + 200 x $150) - $20,000
= $91,000
Gross Profit - Sales - Cost of goods sold
= (150+100+200+200) x $250 - $91,000
= $71,500
Gross margin = Gross Profit / Sales = $71,500 / $162,500 = 44.00%
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