# You are the vice-president of finance of sandy alomar corporation, a

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           Margin

Schedule 1                                                            \$150,000                               \$124,900               \$25,100

Schedule 2                                                            150,000                                                 129,400                                 20,600

The computation of cost of goods sold in each schedule is based on the following data.

Cost                        Total

Units                                       per Unit                  Cost

Beginning inventory, January 1                        10,000                                   \$4.00                      \$40,000

Purchase, January 10                                         8,000                                      4.20                        33,600

Purchase, January 30                                         6,000                                      4.25                        25,500

Purchase, February 11                                        9,000                                      4.30                        38,700

Purchase, 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.

Instructions

Prepare 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

(550 words)

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