effect of inventory cost flow on Exercise 5-20 Effect of inventory cost flow on
ID: 2568036 • Letter: E
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effect of inventory cost flow on Exercise 5-20 Effect of inventory cost flow on ending inventory balance and gross margin Dugan Sales had the following transactions for jackets in 2014, its first year of operations: Jan. 20 Apr. 21 July 25 Sept. 19 Purchased 80units @ $15 Purchased 420 units@$16 Purchased 250 units@$20 Purchased 150 units@$22 $1.200 6,720 5,000 3,300 During the year, Dugan Sales sold 830 jackets for $40 each Required a. Compute the amount of ending inventory Dugan would report on the balance sheet, assum- ing the following cost flow assumptions: (1) FIFO, (2) LIFO, and (3) weighted average. b. Compute the difference in gross margin between the FIFO and LIFO cost flow assumptions.Explanation / Answer
830 jackets were sold and purchase data as given total purchase units is 900 units hence closing inventory is 70 units
Value of closing stock:-
Assuming FIFO method
The 70 units of closing inventory will be of the last purchase of 150 units @ 22
Hence closing inventory = 70units × 22 = 1,540
Using LIFO method
Closing 70 units will be out of first purchase of 80 units @ 15
Closing inventory = 70 units × 15= 1,050
Using weighted average cost method
Total cost of 900 units = 16,220
Average cost per unit is 16,220/900= 18.02
Closing inventory = 70 units × 18.02 = 1,261.40
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