Chapter 6, Problem 7E

Perpetual: Inventors- costing methods—FIFO and LIFO£1

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

Date		Activities	Units Acquired at Cost	Units Sold at Retail
Jan.	1	Beginning inventory........	200 units@ $10 = $ 2,000
Jan.	10	Sales.....................		150 units@ $40
Mar	14	Purchase.................	350 units @ $15 = 5,250
Mar	15	Sales.....................		300 units @ $40
July	30	Purchase.................	450 units @ $20 = 9,000
Oct	5	Sales.....................		430 units @ $40
Oct.	26	Purchase.................	100 units @ $25 = 2,500
		Totals....................	1,100 units $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.)

Check Ending inventory: LIFO, $4,150

To determine

Calculate the cost assigned to ending inventory, when costs are assigned based on the FIFO and LIFO method.

Explanation of Solution

PERPERTUAL INVENTORY - FIFO METHOD
Date	Goods Purchased			Cost of Goods sold			Inventory Balance
	Units	Per unit	Amount	Units	Per unit	Amount	Units	Per unit	Amount
1-Jan							200	$10	$2,000
10-Jan				150	$10	$1,500	50	$10	$500
14-Mar	350	$15	$5,250				50	$10	$500
							350	$15	$5,250
							400		$5,750
15-Mar				50	$10	$500
				250	$15	$3,750	100	$15	$1,500
30-Jul	450	$20	$9,000				100	$15	$1,500
							450	$20	$9,000
							550		$10,500
5-Oct				100	$15	$1,500
				330	$20	$6,600	120	$20	$2,400
26-Oct	100	$25	$2,500				120	$20	$2,400
							100	$25	$2,500
							220		$4,900

Table (1)

Therefore, cost assigned to ending inventory for Perpetual FIFO method amount is $4,900.

PERPERTUAL INVENTORY - LIFO METHOD
Date	Goods Purchased			Cost of Goods sold			Inventory Balance
	Units	Per unit	Amount	Units	Per unit	Amount	Units	Per unit	Amount
1-Jan							200	$10	$2,000
10-Jan				150	$10	$1,500	50	$10	$500
14-Mar	350	$15	$5,250				50	$10	$500
							350	$15	$5,250
							400		$5,750
15-Mar				300	$150	$45,000	50	$10	$500
							50	$15	$750
							100		$1,250
30-Jul	450	$20	$9,000				50	$10	$500
							50	$15	$750
							450	$20	$9,000
							550		$10,250
5-Oct				430	$20	$8,600	50	$10	$500
							50	$15	$750
							20	$20	$400
							100	$25	$2,500
							220		$4,150

Table (2)

Therefore, cost assigned to ending inventory for Perpetual FIFO method amount is $4,150.

Calculate gross profit.

Particulars	FIFO	LIFO
	Amount	Amount
Sales (880 units ×$40 )	$35,200	$35,200
Less: Cost of goods sold	$13,850	$16,450
Gross margin	$21,350	$18,750

Table (3)