E8-19 (FIFO and LIFO Effects) You are the vice-president of finance of Sandy Alomar Corporation, a retail company that prepared two different schedules of gross margin for the first quarter ended March 31, 2007. These schedules appear below. LO 5 Sales Cost of Gross($5 per unit) Goods Sold MarginSchedule 1 $150,000 $124,900 $25,100Schedule 2 150,000 129,400 20,600 The computation of cost of goods sold in each schedule is based on the following data. Cost TotalUnits per Unit CostBeginning inventory, January 1 10,000 $4.00 $40,000Purchase, January 10 8,000 4.20 33,600Purchase, January 30 6,000 4.25 25,500Purchase, February 11 9,000 4.30 38,700Purchase, March 17 11,000 4.40 48,400 Jane Torville, the president of the corporation, cannot understand how two different gross margins can be computed from the same set of data. As the vice-president of finance you have explained to Ms. Torville that the two schedules are based on different assumptions concerning the flow of inventory costs, i.e., FIFO and LIFO. Schedules 1 and 2 were not necessarily prepared in this sequence of cost flow assumptions. InstructionsPrepare two separate schedules computing cost of goods sold and supporting schedules showing the composition of the ending inventory under both cost flow assumptions. Chapter 8 Valuation of Inventories: A Cost-Basis Approach
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