If the company”s manager earns a bonus based on a percent of gross profit, which method of inventory… 1 answer below »

Marlow Company uses a perpetual inventory system. It entered into the following calendar-year 2011 purchases and sales transactions.

Date

Activities

Units Acquired at Cost

Units Sold at Retail

Jan. 1

Beginning inventory

600 units @ $44/unit

 

Feb. 10

Purchase

200 units @ $40/unit

 

Mar. 13

Purchase

100 units @ $20/unit

 

Mar. 15

Sales  

400 units @ $75/unit

Aug. 21

Purchase    

Sept. 5

Purchase    

Sept. 10

Sales  

200 units @ $75/unit  

Totals  

600 units

Required

1. Compute cost of goods available for sale and the number of units available for sale.

2. Compute the number of units in ending inventory.

3. Compute the cost assigned to ending inventory using

(a) FIFO,

(b) LIFO,

(c) specific identification—units sold consist of 500 units from beginning inventory and 100 units from the March 13 purchase and

(d) weighted average. (Round per unit costs to three decimals, but inventory balances to the dollar.)

4. Compute gross profit earned by the company for each of the four costing methods in part 3.

5. If the company’s manager earns a bonus based on a percent of gross profit, which method of inventory costing will the manager likely prefer?

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