Effect of FIFO and LIFO on gross margin over several periods. Whitmore Corporation commenced operations on January 2, Year 5. Its purchases and sales for the first four years appear below:

Ignore income taxes.

a. Compute the gross margin (sales minus cost of goods sold) for each year using a FIFO cost flow assumption.

b. Compute the gross margin for each year using a LIFO cost flow assumption.

c. Compute the percentage change in the gross margin and the percentage change in sales each year (Year 6 relative to Year 5; Year 7 relative to Year 6; Year 8 relative to Year 7) for FIFO and for LIFO.

d. Why are the percentage changes in the gross margin each year less under LIFO than under FIFO?

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Purchases Sales Units Unit Cost Units Unit Price Year 5 4,000 $10.00 3,600 $15.00 Year 6 9,000 12.00 8,000 18.00 Year 7 6,000 11.00 5,500 16.50 Year 8 9,000 10.00 10,000 15.00