Question

Hemming Co. reported the following current-year purchases and sales for its only product.

Date	Activities	Units acquired at a cost	Units Sold to Retail
Jan 1	Beginning Inventory	200 units @ \(10 = \)2,000
Jan 10	Sales		150 units @ \(40
March 14	Purchase	350 units @ \)15= \(5,250
March 15	Sales		300 units @ \)40
July 30	Purchases	450 units @ \(20 = \)9,000
Oct 5	Sales		430 units @ \(40
Oct 26	Purchase	100 units @ \)25 = \(2,500
	Total	1,100 units for \)18,750	880 units

Required

Hemming uses a perpetual inventory system. Determine the costs assigned to ending inventory and to cost of goods sold using (a) FIFO and (b) LIFO. Compute the gross margin for each method. (Round amounts to cents.)

Short answer

Method	Ending Inventory	Gross Profit
FIFO	$4,900	$21,350
LIFO	$4,150	$20,600

Step-by-step solution

Definition of Gross Margin

The margin reflecting the money retained by the business entity after adjusting for all the expenses directly associated with the product is known as the gross margin.

FIFO Method

Calculation of Ending Inventory:

Particular	Beginning inventory/ Purchases			Cost of goods sold			Ending Inventory
	Units	Cost per unit	Total cost	Units	Cost per unit	Total cost	Units	Cost per unit	Total cost
Jan 1	200	10	2,000				200	10	2,000
Jan 10				150	10	1,500	50	10	500
March 14	350	15	5,250				50	10	500
							350	15	5,250
March 15				50	10	500
				250	15	3,750	100	15	1,500
July 30	450	20	9,000				100	15	1,500
							450	20	9,000
Oct 5				100	15	1,500
				330	20	6,600	120	20	2,400
Oct 26	100	25	2,500				120	20	2,400
							100	25	2,500
Total						13,850			4,900

Calculation of Gross profit

Particular	Amount $
Sales$\left(880\times \$40\right)$	$35,200
Less: Cost of goods sold	(13,850)
Gross profit	$21,350

LIFO Method

Calculation of Ending Inventory:

Particular	Beginning inventory/ Purchases			Cost of goods sold			Ending Inventory
	Units	Cost per unit	Total cost	Units	Cost per unit	Total cost	Units	Cost per unit	Total cost
Jan 1	200	10	2,000				200	10	2,000
Jan 10				150	10	1,500	50	10	500
March 14	350	15	5,250				50	10	500
							350	15	5,250
March 15				300	15	4,500	50	10	500
							50	15	750
July 30	450	20	9,000				50	10	500
							50	15	750
							450	20	9,000
Oct 5				430	20	8,600	50	10	500
							50	15	750
							20	20	400
Oct 26	100	25	2,500				50	10	500
							50	15	750
							20	20	400
							100	25	2,500
Total						$14,600			$4,150

Calculation of Gross profit

Particular	Amount $
Sales$\left(880\times \$40\right)$	$35,200
Less: Cost of goods sold	(14,600)
Gross profit	$20,600