Nathan’s Grills, Inc., imports and sells premium-quality gas grills. The company had the following layers in its LIFO inventory at January 1, 20X4, at which time the replacement cost of the inventory was $675 per unit.

The replacement cost of grills remained constant throughout 20X4. Nathan’s sold 275 units during 20X4. 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 20X4 assuming that Nathan’s Grills purchased 280 units during the year.

2. Determine gross margin and the gross margin percentage for 20X4 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.

Transcribed Image Text:

Year LIFO Layer Added Units Unit Cost 20X1 50 $ 450 20X2 40 500 20X3 60 600