
a.
Compute the gross margin for Company M using the FIFO cost flow assumption.
a.

Explanation of Solution
(1)
First-in-First-Out:
In First-in-First-Out method, the costs of the initially purchased items are considered as cost of goods sold, for the items which are sold first. The value of the ending inventory consists of the recent purchased items.
Compute the gross margin for Company M using the FIFO cost flow assumption as follows:
FIFO | Units | Unit Cost (in $) | Amount (in $) | Cost of Goods Sold (in $) |
Sales | 370 | 90 | 33,300 | |
Less: Cost of goods sold: | ||||
Beginning inventory | 90 | 40 | 3,600 | |
Purchases | 280 | 45 | 12,600 | (16,200) |
Gross margin | 1,500 | $17,100 |
Table (1)
Hence, the gross margin for Company M using the FIFO cost flow assumption is $17,100.
(2)
Last-in-Last-Out:
In Last-in-First-Out method, the costs of last purchased items are considered as the cost of goods sold, for the items which are sold first. The value of the closing stock consists of the initial purchased items.
Compute the gross margin for Company M using the LIFO cost flow assumption as follows:
LIFO | Units | Unit Cost (in $) | Amount (in $) | Cost of Goods Sold (in $) |
Sales | 370 | 90 | 33,300 | |
Less: Cost of goods sold: | ||||
Purchases | 310 | 45 | 13,950 | |
Beginning inventory | 60 | 40 | 2,400 | (16,350) |
Gross margin | 1,500 | $16,950 |
Table (2)
Hence, the gross margin for Company M using the LIFO cost flow assumption is $16,950.
(3)
Weighted-average cost method:
Under Weighted average cost method, the company calculates a new average cost after every purchase is made. It is determined by dividing the cost of goods available for sale by the units on hand.
Compute the gross margin for Company M using the weighted average cost flow assumption as follows:
Weighted Average | Units | Unit Cost (in $) | Amount (in $) | Cost of Goods Sold (in $) |
Sales | 370 | 90 | 33,300 | |
Less: Cost of goods sold: | ||||
Average cost per unit | 370 | 43.875 | 16,234 | (16,234) |
Gross margin | 1,500 | $17,066 |
Table (3)
Working Note:
Compute the average unit cost:
Hence, the gross margin for Company M using the weighted average cost flow assumption is $17,066.
b.
Ascertain the amount of net income using FIFO, LIFO, and weighted average.
b.

Explanation of Solution
Net Income:
Net income is the sum total of all the revenues generated in a particular accounting period after deducting cost of goods sold and expenses and losses, such as rent expense,
Ascertain the amount of net income using FIFO, LIFO, and weighted average as follows:
FIFO |
LIFO |
Weighted Average | |
Sales | $33,300 | $33,300 | $33,300 |
Less: Cost of Goods Sold | (16,200) | (16,350) | (16,234) |
Gross Margin | 17,100 | 16,950 | 17,066 |
Less: Operating Expenses | 4,100 | 4,100 | 4,100 |
Net Income | $13,000 | $12,850 | $12,966 |
Table (4)
Hence, the amount of net income using FIFO, LIFO, and weighted average are $13,000, $12,850, and $12,966 respectively.
c.
Compute the amount of ending inventory using FIFO method.
c.

Explanation of Solution
Ending Inventory:
It represents the quantity and price of the goods unsold and laying at the store at the end of a particular period.
(1)
Compute the amount of ending inventory using FIFO method as follows:
Units | Unit Cost (in $) | Ending Inventory (in $) | |
FIFO | 30 | 45 | 1,350 |
Table (5)
(2)
Compute the amount of ending inventory using LIFO method as follows:
Units | Unit Cost (in $) | Ending Inventory (in $) | |
LIFO | 30 | 40 | 1,200 |
Table (6)
(3)
Compute the amount of ending inventory using weighted average method as follows:
Units | Unit Cost (in $) | Ending Inventory (in $) | |
Weighted Average | 30 | 43.875 | 1,316 |
Table (7)
Want to see more full solutions like this?
Chapter 5 Solutions
Fundamental Financial Accounting Concepts
- Waiting for your solution general accounting questionarrow_forwardAnswer? ? Financial accounting questionarrow_forwardNeither Joe nor Jessie is blind or over age 65, and they plan to file as married joint. Assume that the employer portion of the self-employment tax on Jessie's income is $831. Joe and Jessie have summarized the income and expenses they expect to report this year as follows: Income: Joe's salary $ 144,100 Jessie's craft sales 18,400 Interest from certificate of deposit 1,650 Interest from Treasury bond funds 716 Interest from municipal bond funds 920 Expenditures: Federal income tax withheld from Joe's wages $ 13,700 State income tax withheld from Joe's wages 6,400 Social Security tax withheld from Joe's wages 7,482 Real estate taxes on residence 6,200 Automobile licenses (based on weight) 310 State sales tax paid 1,150 Home mortgage interest 26,000 Interest on Masterdebt credit card 2,300 Medical expenses (unreimbursed) 1,690 Joe's employee expenses (unreimbursed) 2,400 Cost of…arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





