Jelly Bros. Tools, Inc. had the following layers in its LIFO tablesaw inventory at january 1, 2018. The company sets its selling price at 200% of relacement cost at the time of sale. Replacement cost as of January 1, 2018 was $850 per unit and remained unchanged throughout 2018. During 2018, the company puchased 650 units and sold 1,150 units.Yeaar LIFO layer added                   Units                        Unit Cost2015                                                200                          $7402016                                                190                          $7802017                                                170                          $820Required:1. Calculate the difference between Jelly Bros. Tools, Inc.'s current cost gross margin (on a replacement cost basis) and the LIFO gross margin as reported by the company in 2018. 2. What does the difference represent?

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Asked Nov 19, 2019
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Jelly Bros. Tools, Inc. had the following layers in its LIFO tablesaw inventory at january 1, 2018. The company sets its selling price at 200% of relacement cost at the time of sale. Replacement cost as of January 1, 2018 was $850 per unit and remained unchanged throughout 2018. During 2018, the company puchased 650 units and sold 1,150 units.

Yeaar LIFO layer added                   Units                        Unit Cost

2015                                                200                          $740

2016                                                190                          $780

2017                                                170                          $820

Required:

1. Calculate the difference between Jelly Bros. Tools, Inc.'s current cost gross margin (on a replacement cost basis) and the LIFO gross margin as reported by the company in 2018. 

2. What does the difference represent?

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Expert Answer

Step 1

Calculate the current operating margin.

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Amounts in (S) $19,55,000 $9,77,500 $9,77,500 Particulars Sales revenues (1,150x(S850 200%)) Less: Replacement cost of goods sold (1,150x$850) Current operating margin

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Step 2

1. Calculate the difference between current cost gross margin (on a replacement cost bas...

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Amounts in (S) Amounts in (S) Particulars $19,55,000 Sales revenues (1,150x(S850x200%)) Less: Cost of goods sold Purchase during 2018 (650 @ $850) Purchase during 2017 (170 @ $820) Purchase during 2016 (190 @ $780) Purchase during 2015 (200@ S740) LIFO gross margin (as reported) Less: Current operating cost margin Cost margins $5,52,500 $1,39,400 $1,48,200 $1,48,000 S9.88.100 $9,66,900 $9,77,500 s10,600

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