Garcia Sales sells golf bags and uses a periodic inventory system. Garcia's inventory records show that at April 1, there were 30 units on hand at a cost of $135 each. Transactions related to purchase and sale of golf bags in April were as follows: Instructions
a. For each of the following cost formulas, calculate the ending inventory as at April 30 and the cost of goods sold for the month of April. Prove the cost of goods sold calculations.
i. FIFO
ii. Average
b. Calculate the gross profit and gross profit margin that will be reported under each of the two cost formulas.
c. Assume that Garcia is motivated to report the highest profit possible. Which method will they prefer? Would your answer be different if the cost of golf bags was increasing, instead of decreasing? What if the cost was fluctuating randomly? Assume Garcia cannot change the selling price of their product.

Question

Garcia Sales sells golf bags and uses a periodic inventory system. Garcia's inventory records show that at April 1, there were 30 units on hand at a cost of $135 each. Transactions related to purchase and sale of golf bags in April were as follows:  Instructions 
a. For each of the following cost formulas, calculate the ending inventory as at April 30 and the cost of goods sold for the month of April. Prove the cost of goods sold calculations.
i. FIFO
ii. Average
b. Calculate the gross profit and gross profit margin that will be reported under each of the two cost formulas.
c. Assume that Garcia is motivated to report the highest profit possible. Which method will they prefer? Would your answer be different if the cost of golf bags was increasing, instead of decreasing? What if the cost was fluctuating randomly? Assume Garcia cannot change the selling price of their product.

Quizplus · Accepted Answer

The Answer of Garcia Sales sells golf bags and uses a periodic inventory system. Garcia's inventory records show that at April 1, there were 30 units on hand at a cost of $135 each. Transactions related to purchase and sale of golf bags in April were as follows:  Instructions 
a. For each of the following cost formulas, calculate the ending inventory as at April 30 and the cost of goods sold for the month of April. Prove the cost of goods sold calculations.
i. FIFO
ii. Average
b. Calculate the gross profit and gross profit margin that will be reported under each of the two cost formulas.
c. Assume that Garcia is motivated to report the highest profit possible. Which method will they prefer? Would your answer be different if the cost of golf bags was increasing, instead of decreasing? What if the cost was fluctuating randomly? Assume Garcia cannot change the selling price of their product.

Garcia Sales Sells Golf Bags and Uses a Periodic Inventory