Hoover Company purchased two identical inventory items.The item purchased first cost $33.00.The item purchased second cost $35.00.Then Hoover sold one of the inventory items for $62.00.Based on this information,which of the following statements is true?
A)The ending inventory is $35.00 if Hoover uses the LIFO cost flow method.
B)The gross margin is $28.00 if Hoover uses the weighted-average cost flow method.
C)The cost of goods sold is $35.00 if Hoover uses the FIFO cost flow method.
D)The cost of goods sold is $33.00 if Hoover uses the LIFO cost flow method.

Question

Quizplus · Accepted Answer

Using weighted average,cost of goods sold is calculated by multiplying the average cost per unit by the number of units sold.If Hoover uses weighted-average,the average cost per unit is $34.00.Therefore,gross margin will be $28.00 (or Sales of $62.00 - Cost of goods sold of $34.00).
The first-in,first-out (FIFO)cost flow method requires that the cost of the items purchased first be assigned to cost of goods sold.If Hoover uses FIFO,cost of goods sold will be $33.00 (earliest purchase)rather than $35.00.
The last-in,first-out (LIFO)cost flow method requires that the cost of the items purchased last be charged to cost of goods sold.If Hoover uses LIFO,cost of goods sold will be $35.00 (most recent purchase)and ending inventory will be $33.00 rather than $35.00.

Hoover Company Purchased Two Identical Inventory Items