Nathan's Grills, Inc., imports and sells premium-quality gas grills. The company had the following layers in its LIFO inventory at January 1, 2017, at which time the replacement cost of the inventory was $675 per unit.
Year LIFO
Layer Added __________ Units ___________ Unit Cost
2014 ....................... 50 .................... $ 450
2015 ....................... 40 .................... 500
2016 ....................... 60 .................... 600
The replacement cost of grills remained constant throughout 2017. Nathan's sold 275 units during 2017. The company established the selling price of each unit by doubling its replacement cost at the time of sale.
Required:
1. Determine gross margin and the gross margin percentage for 2017 assuming that Nathan's
Grills purchased 280 units during the year.
2. Determine gross margin and the gross margin percentage for 2017 assuming that Nathan's
Grills purchased 180 units during the year.
3. Explain why the assumed number of units purchased makes a difference in your answers.