The following data apply to the next two questions. Units Price Beginning Invent
ID: 2511597 • Letter: T
Question
The following data apply to the next two questions.
Units
Price
Beginning Inventory
200
$1.20
First Purchase
400
$1.30
Second Purchase
250
$1.40
Sales
550
$2.00
11. Assuming a FIFO cost flow, the amount of gross margin reported on the income statement would be
a. $405.
b. $695.
c. $415.
d. None of the above.
12. Assuming a LIFO cost flow, the amount of ending inventory reported on the balance sheet would be
a. $240.
b. $415.
c. $130.
d. $370.
I do not know HOW please explain.
Units
Price
Beginning Inventory
200
$1.20
First Purchase
400
$1.30
Second Purchase
250
$1.40
Sales
550
$2.00
Explanation / Answer
11)
Total value of opening Inventory and purchases
= 200 x $1.20 + 400 x $1.30 + 250 x $1.40
= $240 + $520 + $350
= $1,110
Under FIFO valuation, units sold are issued first from the old Inventory and closing inventory consists of the latest purchases
So, cost of goods sold for 550 units
= 200 x $1.20 + (550 – 200) x $1.30
= $240 + $455
= $695
So, Gross margin
= Sales value – Cost of goods sold
= 550 x $2 - $695
= $1,100 - $695
= $405
So, as per above calculations, option a is the correct option
12)
Under LIFO assumption, cost of goods sold consists of latest inventory and the closing inventory consisted of oldest purchases
Closing Inventory quantity
= Opening Inventory + Purchases – Sales
= 200 + 400 + 250 – 550
= 300 units
So, Value of closing Inventory
= 200 x $1.20 + (300 – 200) x $1.30
= $240 + $130
= $370
So, as per above calculations, option d is the correct option
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