Inventory calculations - FIFO and LIFO Effects
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You are the vice-president of finance of Mickiewicz Corporation, a retail company that prepared two different schedules of gross margin for the first quarter ended March 31, 2010. These schedules appear below.
Sales
($5 per unit) Cost of
Goods Sold Gross
Margin
Schedule 1 $154,600 $143,965 $10,635
Schedule 2 154,600 149,197 5,403
The computation of cost of goods sold in each schedule is based on the following data.
Units Cost per Unit Total Cost
Beginning inventory, January 1 10,780 $4.50 $48,510
Purchase, January 10 8,780 4.70 41,266
Purchase, January 30 6,780 4.75 32,205
Purchase, February 11 9,780 4.80 46,944
Purchase, March 17 12,780 4.90 62,622
Peggy Flemming, 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. Flemming that the two schedules are based on different assumptions concerning the flow of inventory costs, e.g., FIFO and LIFO. 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
Mickiewicz Corporation
Schedules of cost of goods sold
For the First Quarter Ended March 31, 2010
Schedule 1
First-in, First-out Schedule 2
Last-in, First-out
Beginning inventory $
$
Plus purchases
Cost of goods available for sale
Less ending inventory
Cost of goods sold $
$
Schedules Computing Ending Inventory
Units
Beginning inventory
Plus purchases
Units available for sale
Less sales
Ending inventory
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Solution Summary
The solution explains inventory calculations under FIFO and LIFO
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