Exercise 8-16 You are the vice president of finance of Sunland Corporation, a re

Question

Exercise 8-16 You are the vice president of finance of Sunland Corporation, a retail company that prepared two different schedules of gross margin for the first quarter ended March 31, 2017. These schedules appear belovw Sales Cost of Gross ($5 per unit) Goods Sold Margin $157,200 $132,806 $24,394 138,078 19,122 Schedule 1 Schedule 2 157,200 The computation of cost of goods sold in each schedule is based on the following data Cost Units per Unit Cost Total 10,550 8,550 6,550 9,550 11,550 $4.10 $43,255 4.20 35,910 4.30 28,165 4.40 42,020 4.50 51,975 Beginning inventory, January1 Purchase, January 10 Purchase, January 30 Purchase, February 11 Purchase, March 17 Dane Torville, the president of the corporation, cannot understand how two different gross margins can be computed from the same set of data. As the vice president of finance, you have explained to Ms. Torille that the two schedules are based on different assumptions concerning the flow of inventory costs, i.e., FIFO and LIFO. Schedules 1 and 2 were not necessarily prepared in this sequence of cost flow assumptions Prepare two separate schedules computing cost of goods sold and supporting schedules showing the composition of the ending inventory under both cost flow assumptions

Explanation / Answer

Schedule of Cost of Good sold FIFO LIFO Beginning Inventory $43,255 $43,255 Add: purchases 158070 158070 Cost of good available for sale $201,325 $201,325 Less: ending Inventoy 68519 63247 Cost of Good sold $132,806 $138,078 Schedule computing COGS FIFO Purchase, February 11 3760 4.4 16544 Purchase, March 17 11550 4.5 51975 15310 68519 Schedule computing COGS LIFO Purchase, February 11 10550 4.1 43255 Purchase, March 17 4760 4.2 19992 15310 63247 working Units Cost Total per Unit Cost Beginning inventory, January 1 10550 4.1 43255 Purchase, January 10 8550 4.2 35910 Purchase, January 30 6550 4.3 28165 Purchase, February 11 9550 4.4 42020 Purchase, March 17 11550 4.5 51975 Total 158070 No. of units sold (157200/5) 31440 FIFO Beginning inventory, January 1 10550 4.1 43255 Purchase, January 10 8550 4.2 35910 Purchase, January 30 6550 4.3 28165 Purchase, February 11 5790 4.4 25476 31440 Ending Invetory Purchase, February 11 3760 4.4 16544 Purchase, March 17 11550 4.5 51975 68519 LIFO Purchase, January 10 (8550-4760) 3790 4.2 15918 Purchase, January 30 6550 4.3 28165 Purchase, February 11 9550 4.4 42020 Purchase, March 17 11550 4.5 51975 31440 Ending Invetory Beginning inventory, January 1 10550 4.1 43255 Purchase, January 10 4760 4.2 19992 63247

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