Problem:
You are vice-president of finance of Sandy Alomar Corp., a retail company that prepared 2 different schedules of gross margin for the first quarter ended March 31, 2007. These schedules appear below:
Sales ($5 per unit) cost of goods sold gross margin
Schedule 1 $150,000 124,900 25,100
Schedule 2 150,000 129,400 20,600
The computation of cost of goods sold in each schedule is based on the following data.
Units Cost per unit Total cost
Beg. Inventory, Jan 1 10,000 $4.00 $40,000
Purchase, Jan 10 8,000 4.20 33,600
Purchase, Jan 30 6,000 4.25 25,500
Purchase, Feb 11 9,000 4.30 38,700
Purchase, March 17 11,000 4.40 48,400
Jane Torville, the president of the corporation, can't understand how 2 different gross margins can be computed from the same set of data. As the V.P. of Finance you have explained to Ms. Torville that the 2 schedules are based on different assumptions concerning the flow of inventory costs, i.e., FIFO and LIFO. Schedules 1 & 2 were not necessarily prepared in this sequence of cost flow assumptions.
Instructions:
Prepare 2 separate schedules computing cost of goods sold and supporting schedules showing the composition of the ending inventory under both cost flow assumptions.