Star Company accounts for its inventory using the LIFO method under periodic inventory procedure. Data on purchases, sales, and inventory for the year ended December 31, 1998, are:

During \(1998,16,000\) units were sold for \(\$ 1,280,000\), leaving an inventory on December 31 , 1998 , of 7,000 units.

a. Compute the gross margin earned on sales during 1998.

b. Compute the change in gross margin that would have resulted if the purchase of December 21 had been delayed until January 6, 1999.

c. Recompute the gross margin assuming that 9,000 units rather than 6,000 units were purchased on December 21 at the same cost per unit.

d. Solve parts \(\mathbf{a}, \mathbf{b}\), and \(\mathbf{c}\) using the FIFO method.

Transcribed Image Text:

Unit Units Cost Merchandise inventory, January 1. 2,000 @ $20 Purchases: January 7. 5,000 24 July 7 10,000 @ 28 December 21 6,000 @ 32