Fermento sells a wine it purchases from a local brewer. Fermento stocked up on t

Question

Fermento sells a wine it purchases from a local brewer. Fermento stocked up on the wine throughout the year, preparing for a special enum sales event in late December. On January 1, Fermento had 250 bottles on hand that cost $15 each. They also made the following purchases: 800 bottles for $14 each on Mar. 28 60 bottles for S12 each on Sep. 14 110 bottles for $11 each on Nov.5 Fermento's sales were as follows: 250 from the beginning inventory 450 from the Mar. 28 purchase 60 from the Sep. 14 purchase 80 from the Nov. 5 purchase All of the wine was sold for $42 per bottle Assume Fermento uses LIFO for inventory costing. What was Fermento's cost of goods avalable for sale for the year? What was Fermento's cost of ending inventory for the wine at December 31? What was Fermento's gross margin on the wine for the year? Assume Fermento uses FIFO for inventory costing. What was Fermento's cost of goods avalable for sale for the year? What was Fermento's gross margin on the wine for the year?

Explanation / Answer

1. assuming LIFO for inventory costing:

2.

note:

cost of goods available for sale during the year will be same for LIFO and FIFO:

note:

cost of ending inventory:

during the year (250 + 800+60+110)=>1,220 bottles were available for sale.

out of which (250+450+60+80)=>840 bottles were sold

=> closing stock consists of 380 bottles.

Under LIFO,

the earliest purchase lot will form part of closing stock.

=> out of 480 bottles 250 will be from opening stock , value being $15 *250 =>$3,750.

remaining (480-250)==>130 will be from march 28 purchase.

value being 230*$14 =>$1,820.

total value of ending inventory as per LIFO =>$3,750 + $1,820 =>$5,570

note3:

cost of goods sold = cost of goods available for sale - cost of ending inventory

=>$16,880 - 5,570 =>$11,310.

gross margin on wine = sale value - cost of goods sold

here,

sale value = 840 units sold *$42 =>$35,280.

=>$35,280 - $11,310

=>$23,970.

note 4:

gross margin under FIFO

=> sale value - cost of goods sold

here,

sale value = 840 units * $42 =>$35,280.

cost of goods sold under FIFO.

FIFO assumes that the items which were a part of inventory at the earliest will be sold first,

=>out of 840 units sold

250 units will be from opening stock, value = 250 units *$15 =.$3,750.

remaining (840 -250)=>590 units will be from march 28 purchase => $14 * 590=>$8,260.

cost of goods sold = $3750+8260=>$12,010.

gross margin = $35,280 - $12,010

=>$23,270.

what was fermento's cost of goods available for sale for the year (see note) $16,880 cost of ending inventory for wine? (see note) $6,970 Femento's gross margin on wine for the year (seee note) $23,970

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