Given the information below, fill in the missing information: 1/20 Purchased Uni

Question

Given the information below, fill in the missing information:

1/20 Purchased Units 75 @ $17 = $1,275
4/21 Purchased Units 450 @ $19 = $8,550
7/25 Purchased Units 200 @ $23 = $4,600
9/19 Purchased Units 100 @ $29 = $2,900
Available for Sale 825 $17,325

During this year, Bristol Sales sold 775 DVDs for $60 each.

Finish these equations:

FIFO
Sales
Cost of Goods Available for Sale - Ending Inventory = Cost of Goods Sold

What is the Gross Margin under FIFO?


LIFO
Sales
Cost of Goods Available for Sale - Ending Inventory = Cost of Goods Sold
Cost of Goods Sold

What is the Gross Margin under FIFO?

What is the difference in Gross Margin between FIFO and LIFO?

Explanation / Answer

No matter what, sales will be the same for both inventory costing methods. It says they sold 775 DVDs for $60 each.

So that is 775 X $60 = $46,500 That is your sales.

It tells you your Available for Sale being 825 units with a $17,325 cost.

Since you sold 775 DVDs, your ending inventory will consist of 825 - 775 = 50 units.

FIFO means First In, First Out. That means the first items purchased are the first items sold. This leaves your ending inventory being the last items purchased. We see that on 9/19 they purchased 100 units @ $29 a piece. Well using FIFO, our 50 units of ending inventory will be from this last purchase.

So 50 X $29 = $1450 This is our ending inventory under the FIFO Method.

Then we find the difference from Available to Sale and ending inventory. This will be the Cost of Goods Sold.

So that is $17,325 - $1450 = $15,875.

To find Gross Margin, we find the difference between sales and cost of goods sold.

That is $46,500 - $15,875 = $30,625.

Next we deal with LIFO. Sales will not change, it will still be $46,500. Available for Sale will still be 825 units at a cost of $17,325. Ending inventory will still only be 50 units, however how we cost these units will be different.

LIFO means Last In, First Out. That meants the last items purchased are the first items sold. This leaves your ending inventory being the first items you purchased. We see that on 1/20 they purchased 75 units at $17. 50 of these units will be your ending inventory.

So we have 50 X $17 = $850 as the ending inventory.

 

Next we find Cost of Goods sold by finding the difference between available for sale and the ending inventory.

This is $17325 - $850 = $16,475

Lastly we find Gross Margin by finding the difference between sales and cost of goods sold.

This is $46,500 - $16,475 = $30,025

 

So the Gross Margin under FIFO was $30,625 and the Gross Margin under LIFO was $30,025

The difference between these two is $30,625 - $30,025 = $600.

FIFO gives you $600 more for your Gross Margin than LIFO does.

Hope this helped.

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