Q32PGA_2 - Horngren'S Financial And Managerial Accounting

Question

Futuristic Electronic Center began October with 65 units of merchandise inventory that cost \(82 each. During October, the store made the following purchases:

Oct. 3                 25 units @ \) 90 each

12                       30 units @ \( 90 each

18                       35 units @ \) 96 each

 

Futuristic uses the periodic inventory system, and the physical count at October 31 indicates that 80 units of merchandise inventory are on hand.

 

Requirements

2. Net sales revenue for October totaled $28,000. Compute Futuristic’s gross profit for October using each method.

Step-by-Step Solution

Answer

Gross profit under:

FIFO: $21,770

LIFO: $21,040

Weighted Average: $21,400

Step-by-Step Solution Step 1: Gross margin under FIFO

$$\begin{gathered} \mathrm{Gross} \mathrm{margin} = \mathrm{Total} \mathrm{revenue} -\mathrm{COGS} \\ =\$28,000-\$6,230 \\ =\$21,770 \end{gathered}$$

Step 2: Gross margin under LIFO

$$\begin{gathered} \mathrm{Gross} \mathrm{Margin} = \mathrm{Total} \mathrm{Revenue} - \mathrm{COGS} \\ =\$28,000 - \$6,960 \\ =\$21,040 \end{gathered}$$

Step 3: Gross margin under the weighted average

$$\begin{gathered} \mathrm{Gross} \mathrm{margin} = \mathrm{Total} \mathrm{revenue} - \mathrm{COGS} \\ =\$28,000 - \$6,600 \\ =\$21,400 \end{gathered}$$