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.
Purchased 75 units @ $15
Purchased 450 units @ $20
Purchased 300 units @ $23
Purchased 100 units @ $26
During the year, Ross Sales sold 850 DVDs for $60 each.
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.