Calculate a) cost of goods sold, b) ending inventory, and c) gross margin for B76 Company, considering the following transactions under three different cost allocation methods and using perpetual inventory updating. Provide calculations for first-in, first-out (FIFO).

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Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685

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FindFindarrow_forward

Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 10, Problem 9PB
Textbook Problem
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Calculate a) cost of goods sold, b) ending inventory, and c) gross margin for B76 Company, considering the following transactions under three different cost allocation methods and using perpetual inventory updating. Provide calculations for first-in, first-out (FIFO).

To determine

Introduction:

First In First Out is a method of evaluation of cost of goods sold. In this method, it is assumed that units purchased at first is sold first. Costs in relation with units sold are taken from cost of first lot and in case, the sold units is higher than the first lot purchased, then cost of second lot is used.

To compute:

The COGS, ending inventory and gross margin under three different cost allocation methods using perpetual inventory system. Also, show calculations for FIFO.

Explanation of Solution

Table showing COGS, ending inventory, and gross margin under three different cost allocation methods using perpetual inventory system:

 Particulars FIFO ($) LIFO ($) Weighted Average ($) COGS2 138,475 141,250 139,757 Ending Inventory1 39,775 37,000 38,492 Gross Margin3 152,110 149,335 150,828 Table (1) Working Notes: 1. Computation of Closing Inventory:  Particulars Amount ($) Opening Inventory ((420−150−270)×$200) 0 Lot-1 Purchases ((250−5−245)×$205) 0 Lot-2 Purchases ((200−15)×\$215) 39,775

Table (2)

2

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