Answer:
B) the amount of gross margin is $16.75 if Hoover uses the weighted average cost flow method.
Explanation:
Weighted Average cost flow method= $ 41+ $ 45.5/2= 86.5/2=$ 43.25
Sales Price = $ 60
Less Unit Sold at $ 43.25
Gross Margin $ 16.75
Only option B is correct
Option A is incorrect because LIFO would assign $ 41 to ending inventory.
Option C is incorrect because FIFO would assign $ 41 to cost of goods sold
Option D is incorrect because LIFO would assign $ 44.4 to cost of goods sold.
Answer:
C is the answer.
Explanation:
If Hoover uses the weighted average cost flow method, the two items are added up and weighed or divided by two as in this case. This gives a total cost of $86.50 ($41 + $45.50) and an average cost of $43.25 ($86.50/2). Since the item was sold for $60, there is a gross margin of $16.75 ($60 - $43.25).
Answer A is wrong because if Hoover uses the LIFO method, the ending inventory would have been valued at $41 and not $45.50, which represents the value of item sold.
Answer C is wrong because if Hoover uses the FIFO method, the cost of goods sold is $41 and not $45.50.
Similarly, answer D is wrong because if Hoover uses the LIFO method, the cost of goods sold is $45.50 and not $41.
Note: LIFO means Last In, First Out while FIFO means First In, First Out. They are cost flow methods of valuing goods sold and inventory, together with the weighted average method.
