Reference no: EM131333311

Assignment: FIFO and LIFO Effects

You are the vice-president of finance of Sandy Alomar Corporation, a retail company that prepared two different schedules of gross margin for the first quarter ended March 31, 2007. These schedules appear below. LO 5

                     Sales                Cost of       Gross
                 ($5 per unit)      Goods Sold     Margin
Schedule 1    $150,000          $124,900     $25,100
Schedule 2    150,000            129,400       20,600

The computation of cost of goods sold in each schedule is based on the following data.

                                                 Units        Cost per Unit     Total Cost
Beginning inventory, January 1     10,000          $4.00             $40,000
Purchase, January 10                   8,000           4.20               33,600
Purchase, January 30                   6,000           4.25               25,500
Purchase, February 11                 9,000           4.30               38,700
Purchase, March 17                     11,000         4.40               48,400

 

Jane 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. Torville 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.

Instructions

Prepare two separate schedules computing cost of goods sold and supporting schedules showing the composition of the ending inventory under both cost flow assumptions.

Chapter 8 Valuation of Inventories: A Cost-Basis Approach.