Use the following information for questions 62-64.
A company had the following inventory activity during May:
-If the company uses a perpetual system and the FIFO cost formula, what is the gross margin on the May 5 sale closest to?

Question

Use the following information for questions 62-64.
A company had the following inventory activity during May: 
-If the company uses a perpetual system and the FIFO cost formula, what is the gross margin on the May 5 sale closest to?

Quizplus · Accepted Answer

We can calculate the cost of goods sold using the FIFO method and then subtract it from the revenue to find the gross margin.

May 5 sale: 
2 units sold at $4,500 each = $9,000 revenue

Cost of goods sold: 
2 units from beginning inventory at $4,000 each = $8,000 
2 units from the May 12 purchase at $4,200 each = $8,400 
Total cost of goods sold = $16,400

Gross margin = revenue - cost of goods sold = $9,000 - $16,400 = -$7,400

Since the gross margin is negative, there is an overall loss on the May 5 sale. Therefore, none of the answer choices are correct.

Use the Following Information for Questions 62-64