Hemming uses a perpetual inventory system. 1. Determine the costs assigned to ending inventory and to cost of goods sold using FIFO. 2. Determine the costs assigned to ending inventory and to cost of goods sold using LIFO. 3. Compute the gross margin for FIFO method and LIFO method.

1.FIFO =

Cost of Goods Sold = $13850

Ending inventory = $400 (220 units)

2. LIFO

Cost of Goods Sold = $14600

Ending inventory = $4150

3. Gross Margin

FIFO = 60.65%

LIFO = 58.52%

Explanation:

Please refer attached tables for the question as well as the explanation of answers.

1. FIFO, First-In-First-Out is whereby the inventory that comes in first, is sold first. Common for perishables such as vegetables that cannot be left in store for too long. Refer FIFO table in attachment.

2. LIFO, Last-In-First-Out is whereby the inventory that comes last is the first to be sold. This is generally for bulky goods piled one one top of the other. So the last received (piled on top) is used first. Refer LIFO table in attachment.

3. Gross Margin = [(Total Revenue - Cost of Goods Sold) / Total Revenue] x 100

FIFO

Total Revenue = 880 units x $40 = $35200

Cost of Goods Sold = $13850

Gross Margin = [(35200 - 13850) / 35200] x 100 = 60.65%

LIFO

Total Revenue = 880 units x $40 = $35200

Cost of Goods Sold = $14600

Gross Margin = [(35200 - 14600) / 35200] x 100 = 58.52%

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