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, 2017. These schedulesappear below.

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.

Cost Total

Units per Unit 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 thesame set of data. As the vice president of finance, you have explained to Ms. Torville that the two schedules are based on differentassumptions concerning the flow of inventory costs, i.e., FIFO and LIFO. Schedules 1 and 2 were not necessarily prepared inthis sequence of cost flow assumptions.

Instructions

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

Step by step solution

01

Computation of cost of goods sold and ending inventory using FIFO

$$\begin{gathered} \mathbf{No}\mathbf{}\mathbf{ofunits}\mathbf{}\mathbf{sold}\mathbf{}\mathbf{=}\mathbf{}\frac{\mathbf{Sales}\mathbf{}\mathbf{Revenue}}{\mathbf{Salesprice}\mathbf{}\mathbf{per}\mathbf{}\mathbf{unit}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{150}\mathbf{,}\mathbf{000}}{\mathbf{\$}\mathbf{5}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{30}\mathbf{,}\mathbf{000}\mathbf{}\mathbf{units} \end{gathered}$$

$$\begin{gathered} \mathbf{Ending}\mathbf{}\mathbf{inventory}\mathbf{}\mathbf{\left(}\mathbf{units}\mathbf{\right)}\mathbf{=}\mathbf{Total}\mathbf{}\mathbf{units}\mathbf{}\mathbf{available}\mathbf{}\mathbf{for}\mathbf{}\mathbf{sale}\mathbf{}\mathbf{-}\mathbf{}\mathbf{No}\mathbf{}\mathbf{ofunits}\mathbf{}\mathbf{sold} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\left(10,000+8,000+6,000+9,000+11,000\right)\mathbf{-}\mathbf{30}\mathbf{,}\mathbf{000} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{14}\mathbf{,}\mathbf{000}\mathbf{}\mathbf{units} \end{gathered}$$

$$\begin{gathered} \mathbf{Cost}\mathbf{}\mathbf{of}\mathbf{}\mathbf{ending}\mathbf{}\mathbf{inventory}\mathbf{}\mathbf{(}\mathbf{based}\mathbf{}\mathbf{on}\mathbf{}\mathbf{FIFO}\mathbf{)}\mathbf{}\mathbf{=}\mathbf{}\mathbf{Value}\mathbf{}\mathbf{of}\mathbf{}\mathbf{March}\mathbf{}\mathbf{17}\mathbf{}\mathbf{purchase}\mathbf{+}\mathbf{value}\mathbf{}\mathbf{of}\mathbf{}\mathbf{Feb}\mathbf{}\mathbf{11}\mathbf{}\mathbf{purchase}\mathbf{}\mathbf{for}\mathbf{}\mathbf{3}\mathbf{,}\mathbf{000}\mathbf{}\mathbf{units} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{48}\mathbf{,}\mathbf{400}\mathbf{+}\mathbf{\$}\mathbf{12}\mathbf{,}\mathbf{900} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{61}\mathbf{,}\mathbf{300} \\ \mathbf{} \end{gathered}$$

Schedule 1

Value of Beginning Inventory		$40,000
Value of Purchase
On Jan 10	$33,600
On Jan 30	$25,500
On Feb 11	$38,700
On March 17	$48,400	$146,200
Total Goods Available for sale		$186,200
Less: Cost of ending inventory		-$61,300
Cost of goods sold		$124,900

02

Computation of cost of goods sold and ending inventory using LIFO

$$\begin{gathered} \mathbf{No}\mathbf{}\mathbf{of}\mathbf{}\mathbf{units}\mathbf{}\mathbf{sold}\mathbf{}\mathbf{=}\frac{\mathbf{Sales}\mathbf{}\mathbf{Revenue}}{\mathbf{Sales}\mathbf{}\mathbf{price}\mathbf{}\mathbf{per}\mathbf{}\mathbf{unit}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{150}\mathbf{,}\mathbf{000}}{\mathbf{\$}\mathbf{5}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{30}\mathbf{,}\mathbf{000}\mathbf{}\mathbf{units} \end{gathered}$$

$$\begin{gathered} \mathbf{Ending}\mathbf{}\mathbf{inventory}\mathbf{}\mathbf{\left(}\mathbf{units}\mathbf{\right)}\mathbf{}\mathbf{=}\mathbf{}\mathbf{Total}\mathbf{}\mathbf{units}\mathbf{}\mathbf{available}\mathbf{}\mathbf{for}\mathbf{}\mathbf{sale}\mathbf{}\mathbf{-}\mathbf{}\mathbf{No}\mathbf{.}\mathbf{}\mathbf{of}\mathbf{}\mathbf{units}\mathbf{}\mathbf{sold} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{(}\mathbf{10}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{8}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{6}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{9}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{11}\mathbf{,}\mathbf{000}\mathbf{)}\mathbf{-}\mathbf{30}\mathbf{,}\mathbf{000} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{14}\mathbf{,}\mathbf{000}\mathbf{}\mathbf{units} \end{gathered}$$

$$\begin{gathered} \mathbf{Cost}\mathbf{}\mathbf{of}\mathbf{}\mathbf{ending}\mathbf{}\mathbf{inventory}\mathbf{}\mathbf{(}\mathbf{based}\mathbf{}\mathbf{on}\mathbf{}\mathbf{LIFO}\mathbf{)}\mathbf{}\mathbf{=}\mathbf{}\mathbf{Value}\mathbf{}\mathbf{of}\mathbf{}\mathbf{Beg}\mathbf{}\mathbf{inventory}\mathbf{+}\mathbf{value}\mathbf{}\mathbf{of}\mathbf{}\mathbf{Jan}\mathbf{}\mathbf{10}\mathbf{}\mathbf{purchase}\mathbf{}\mathbf{for}\mathbf{}\mathbf{4}\mathbf{,}\mathbf{000}\mathbf{}\mathbf{units} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{40}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{16}\mathbf{,}\mathbf{800} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{56}\mathbf{,}\mathbf{800} \\ \mathbf{} \end{gathered}$$

Schedule 2

Value of Beginning Inventory		$40,000
Value of Purchase
On Jan 10	$33,600
On Jan 30	$25,500
On Feb 11	$38,700
On March 17	$48,400	$146,200
Total Goods Available for sale		$186,200
Less: Cost of ending inventory		-$56,800
Cost of goods sold		$129,400

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