Exercise 8-16

You are the vice president of finance of Novak Corporation, a retail company that prepared two different schedules of gross margin for the first quarter ended March 31, 2020. These schedules appear below.

		Sales ($5 per unit)		Cost of Goods Sold		Gross Margin
Schedule 1		$155,700		$143,522		$12,178
Schedule 2		155,700		149,694		6,006

The computation of cost of goods sold in each schedule is based on the following data.

		Units		Cost per Unit		Total Cost
Beginning inventory, January 1		11,250		$4.50		$50,625
Purchase, January 10		9,250		4.60		42,550
Purchase, January 30		7,250		4.70		34,075
Purchase, February 11		10,250		4.80		49,200
Purchase, March 17		12,250		4.90		60,025

Debra King, the president of the corporation, cannot understand how two different gross margins can be computed from the same set of data. As the vice president of finance, you have explained to Ms. King that the two schedules are based on different assumptions concerning the flow of inventory costs, i.e., FIFO and LIFO. Schedules 1 and 2 were not necessarily prepared in this sequence of cost flow assumptions. Prepare two separate schedules computing cost of goods sold and supporting schedules showing the composition of the ending inventory under both cost flow assumptions.

Novak Corporation Schedules of Cost of Goods Sold For the First Quarter Ended March 31, 2020
		Schedule 1 First-in, First-out		Schedule 2 Last-in, First-out

	$		$

:

:

$

$

Schedules Computing Ending Inventory

First-in, First-out (Schedule 1)
	at	$	=	$
	at	$	=
				$

Last-in, First-out (Schedule 2)
	at	$	=	$
	at	$	=
				$