The Soft Inc. sells leather furniture. The following schedule relates to the com
ID: 342234 • Letter: T
Question
The Soft Inc. sells leather furniture. The following schedule relates to the company’s inventory for the month of April:
Cost
Sales
April 1
Beginning inventory
75 Units
$45,000
3
Purchase
50 Units
31,250
5
Sale
30 Units
33,000
11
Purchase
25 Units
16,250
15
Sale
55 Units
68,750
22
Sale
40 Units
48,000
28
Purchase
50 Units
33,750
Soft Inc. uses the periodic inventory system.
Required:
a. Calculate the cost of goods sold and ending inventory under each of the following costing assumptions:
1. FIFO
2. Weighted average
b. Determine the gross margin under each of the costing assumptions calculated in part a. Which of the costing assumption produced the higher gross margin?
Cost
Sales
April 1
Beginning inventory
75 Units
$45,000
3
Purchase
50 Units
31,250
5
Sale
30 Units
33,000
11
Purchase
25 Units
16,250
15
Sale
55 Units
68,750
22
Sale
40 Units
48,000
28
Purchase
50 Units
33,750
Explanation / Answer
a. Calculate the cost of goods sold and ending inventory under each of the following costing assumptions:
b. Determine the gross margin under each of the costing assumptions calculated in part a. Which of the costing assumption produced the higher gross margin?
FIFO gives higher gross margin.
FIFO Weighted average Ending inventory (33750+16250) = 50000 (126250/200)*75=47343.75 Cost of goods sold (45000+31250) = 76250 (126250/200*125) = 78906.25Related Questions
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