Instructor: Dr. Hall Accounting 460 Estimated time
CPA Problems 40-50 minutes
Handout Problem No. F-141
This problem consists of two unrelated parts.
Part A. The controller of the Investor Corporation, a retail company, made three different
schedules of gross margin for the first quarter ended September 30, 1978. These schedules
appear below.
Sales ($10 per
Unit) Cost of Goods Sold Gross Margin
Schedule A
Schedule B
Schedule C
$280,000
280,000
280,000
$118,550
116,900
115,750
$161,450
163,100
164,250
The computation of cost of goods sold in each schedule is based on the following data:
Units Cost per Unit Total Cost
Beginning inventory, July 1
Purchase, July 25
Purchase, August 15
Purchase, September 5
Purchase, September 25
10,000
8,000
5,000
7,000
12,000
$4.00
4.20
4.13
4.30
4.25
$40,000
33,600
20,650
30,100
51,000
The president of the corporation cannot understand how three different gross margins can be
computed from the same set of data. As controller, you have explained to him that the three
schedules are based on three different assumptions concerning the flow of inventory costs; i.e.,
first-in, first-out; last-in, first-out; and weighted average. Schedules A, B, and C were not
necessarily prepared in this sequence of cost-flow assumptions.
Required:
Prepare three separate schedules computing cost of goods sold and supporting schedules
showing the composition of the ending inventory under each of the three cost-flow assumptions.
