Compute the difference in gross margin between the FIFO and LIFO cost flow assumptions. 1 answer below »

Effect of inventory cost flow on ending inventory balance and gross margin

Ross Sales had the following transactions for DVDs in 2010, its first year of operations.

Jan. 20

Purchased 75 units @ $15

=

$1,125

Apr. 21

Purchased 450 units @ $20

=

9,000

July 25

Purchased 300 units @ $23

=

6,900

Sept. 19

Purchased 100 units @ $26

=

2,600

During the year, Ross Sales sold 850 DVDs for $60 each.

Required

a. Compute the amount of ending inventory Ross would report on the balance sheet, assuming the following cost flow assumptions: (1) FIFO, (2) LIFO, and (3) weighted average.

b. Compute the difference in gross margin between the FIFO and LIFO cost flow assumptions.

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