You are the vice-president of finance of Mickiewicz Corporation, a retail company that prepared two different schedules of gross margin for the first quarter ended March 31, 2010. These schedules appear below.
Sales Cost of Goods Sold Gross Margin
($5 per unit)
Schedule 1 $150,000 $124,900 $25,100
Schedule 2 150,000 129,600 20,400
The computation of cost of goods sold in each schedule is based on the following data.
Units Cost per Unit Total 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 12,000 4.40 52,800
Peggy Flemming, 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. Flemming that the two schedules are based on different assumptions concerning the flow of inventory costs, e.g., FIFO and LIFO. Schedules 1 and 2 were not necessarily prepared in this sequence of cost flow assumptions.
Prepare two separate schedules computing cost of goods sold and supporting schedules showing the composition of the ending inventory under both cost flow assumptions.
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