You are the vice president of finance of Sandy Alomar Corporation, a retail comp

Question

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, 2014. These schedules appear below. The computation of cost of goods sold in each schedule is based on the following data. 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 UFO. 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

Closing inventory = opening + purchase - sales = 12,640 + ( 10,640 + 8,640 + 11,640 + 13,640 ) - ( 154,500 / $5)

= 26,300

FIFO : as per FIFO, First in First out the stock is left from the stock purchased recently so under FIFO stock is from

Purchase March 17 = 13,640 X 4.70 = 64,108

Purchase February 11 = 11,640 X 4.60 = 53,544

Purchase January 30 = ( 26,300 - 13,640 - 11,640 ) X 4.55 = 4,641

Total Ending Stock = 122,293

LIFO : Under LIFO, Last In First Out the closing stock is comprises of the stock purchased most earliar in following case it is

Begining = 12,640 X 4.30 = 54,352

Purchase January 10 = 10,640 X 4.50 = 47,880

Purchase January 30 = ( 26,300 - 12,640 - 10,640) X4.55 = 13,741

Total Ending Inventory = 115,973

Calculation of Cost Goods Sold

Note : There is calculation error in the figures given in question. above answer is correct

Particulars FIFO LIFO Opening Stock 54,352 54,352 Add : Purchases 204,844 204,844 Cost of Goods available for sale 259,196 259,196 Less : Closing Stock 122,293 115,973 Cost of goods sold 136,903 143,223

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