Exercise 5-4B Effect of inventory cost flow (FIFO, LIFO, and weighted average) on gross margin The following information pertains to Stanley Company for Year 2: Beginning Inventory Units purchased 90 units 320 units @ $19 $15 Ending inventory consisted of 40 units. Stanley sold 370 units at $30 each. All purchases and sales were made with cash. Required a. Compute the gross margin for Stanley Company using the following cost flow assumptions: (1) FIFO, (2) LIFO, and (3) weighted average. b. What is the dollar amount of difference in net income between using FIFO versus LIFO? (Ignore income tax considerations.) c. Determine the cash flow from operating activities, using each of the three cost flow assumptions listed in Requirement a. Ignore the effect of income taxes. Explain why these cash flows have no differences. EXERCISE 5-4B a. (1) Stanley Company FIFO Sales $ Cost of Goods Sold: From units @ $ = $ From units @ $ = $ ( ) Gross Margin $ a. (2) LIFO Sales (@$ ) $ Cost of Goods Sold: From: units @ $ = $ From: units @ $ = ( ) Gross Margin $ a. (3) Weighted Average Sales $ Cost of Goods Sold* ) Gross Margin $ * Average cost per unit = total cost total units for $ per unit x avg. cost =cost of goods sold b. $ The difference in net income would be the same as the difference in gross margin, assuming there are no income tax considerations. C. Cash Flows From Operating Activities: Cash Inflow from Cash Outflow for Net Cash Flow from Operating Act. FIFO LIFO W. Avg. $11,100 Net cash flow from operating activities will be the same for all three methods because: