ElecTech Industries had in inventory two transformers,one purchased in February for $11,800 and the other acquired in September for $13,300.In December,they sold one of the transformers to Ram Enterprises for $16,400 and reported a gross margin of $3,100.Tiger Industries evidently uses the ________ inventory valuation method.

Question

Quizplus · Accepted Answer

Since ElecTech Industries reported a gross margin of $3,100, it means that the cost of goods sold was $13,300 (the cost of the transformer sold to Ram Enterprises). Since the cost of goods sold was higher than the selling price of the transformer, it suggests that ElecTech Industries used the LIFO (Last In, First Out) inventory valuation method, as it assumes that the most recently purchased items are the first ones to be sold. This results in a higher cost of goods sold and a lower net income, which is reflected in the gross margin.

ElecTech Industries Had in Inventory Two Transformers,one Purchased in February