Exercise 6-42 (Algorithmic) Applying the Cost of Goods Sold Model Shippington Sa

ID: 2408981 • Letter: E

Question

Exercise 6-42 (Algorithmic) Applying the Cost of Goods Sold Model Shippington Sales sells a single product. At the beginning of the year, Shippington had 120 units in stock at a cost of $5 each. During the year, Shippington purchased 850 more units at a cost of $5 each and sold 210 units at $13 each, 250 units at $15 each, and 360 units at $14 each. Required: 1. Using the cost of goods sold model, what is the amount of ending inventory and cost of goods sold? Cost of goods sold Ending inventory 2. What is Shippington's gross margin for the year?

Explanation / Answer

Cost of goods sold

$4,100

Ending Inventory

$750

Gross Margin

$7,420

Workings

We Know Cost of goods sold = Beginning Inventory + Purchases – Ending Inventory

Cost of Goods Sold = [210 + 250 + 360 ] x $5 = $4,100

Purchases = 850 x $5 = $4,250

Ending Inventory = Beginning Inventory + Purchases - Cost of good sold

= [ 120 x $5 ] + 4,250 – 4,100

= $750

Gross Margin for the year = Sales – Cost of goods sold

= [ (210 x $13) + (250 x $15) + (360 x $14) ] - $4,100

= $11,520 – 4,100

= $7,420