Q37PGB_2 - Horngren'S Financial And Managerial Accounting

Question

Right Now Electronic Center began October with 100 units of merchandise inventory that cost \(70 each. During October, the store made the following purchases:

 

Oct. 3 35 units @ \) 82 each

12 45 units @ \( 84 each

18 75 units @ \) 90 each

 

Right Now uses the periodic inventory system, and the physical count at October 31indicates that 130 units of merchandise inventory are on hand.

 

Requirements

2. Net sales revenue for October totaled $26,000. Compute Right Now’s gross profitfor October using each method.

Step-by-Step Solution

Answer

Gross profit under –

FIFO:$16,950

LIFO:$15,060

Weighted Average:$16,000

Step1: Gross margin under FIFO

$$\begin{gathered} \text{Grossmargin=TotalRevenue-COGS} \\ \text{=\$26,000-\$9,050} \\ \text{=\$16,950} \end{gathered}$$

Step 2: Gross margin under LIFO

$$\begin{gathered} \text{Grossmargin=TotalRevenue-COGS} \\ \text{=\$26,000-\$10,940} \\ \text{=\$15,060} \end{gathered}$$

Step 3: Gross margin under the weighted average

$$\begin{gathered} \text{Grossmargin=TotalRevenue-COGS} \\ \text{=\$26,000-\$10,000} \\ \text{=\$16,000} \end{gathered}$$