Q28PGA_2 - Horngren'S Financial And Managerial Accounting

Question

Fit Gym began January with merchandise inventory of 78 crates of vitamins that cost a total of \(4,290. During the month, Fit Gym purchased and sold merchandise on account as follows:

Jan. 5 Purchase                     156 crates @ \) 64 each

13 Sale                                    180 crates @ \( 100 each

18 Purchase                           114 crates @ \) 75 each

26 Sale                                    150 crates @ $ 116 each

 

Requirements

2. Prepare a perpetual inventory record, using the LIFO inventory costing method, and determine the company’s cost of goods sold, ending merchandise inventory, and gross profit.

Step-by-Step Solution

Answer

Cost of goods sold: $21,834

Ending Inventory: $990

Gross Profit: $13,566

Step-by-Step Solution

Step 1: Perpetual inventory table under the LIFO method

	Purchases			Cost of goods sold			Inventory on hand
Date	Qty	Unit cost	Total Cost	Qty	Unit cost	Total Cost	Qty	Unit Cost	Total Cost
Jan 1.							78	$55	$4,290
Jan 5.	156	$64	$9,984				78 156	$55 $64	$14,274
Jan 13				156 24	$64 $55	$11,304	54	$55	$2,970
Jan 18	114	$75	$8,550				54 114	$55 $75	$11,520
Jan 26				114 36	$75 $55	$10,530	18	$55	$990
Total	270		$18,534	330		$21,834	18	$55	$990

Step 2: Computation of gross profit

$$\begin{gathered} \mathrm{Total} \mathrm{Revenue} = \mathrm{Sale} \mathrm{value} \mathrm{of} 13\mathrm{th} \mathrm{Jan} + \mathrm{Sale} \mathrm{value} \mathrm{of} 26\mathrm{th} \mathrm{Jan} \\ =\left(180 \times \$100\right)+\left(150 \times \$116 \right) \\ =\$18,000 + \$17,400 \\ =\$35,400 \end{gathered}$$

$$\begin{gathered} \mathrm{Gross} \mathrm{Profit} = \mathrm{Total} \mathrm{revenue} -\mathrm{Cost} \mathrm{of} \mathrm{goods} \mathrm{sold} \\ =\$35,400-\$21,834 \\ =\$13,566 \end{gathered}$$