Eecol Electric Ltd. distributes electronic components and has just completed their first year of operation. Management is looking forward to finding out what the profit for the year was because they get paid a bonus based on net income. The accountant has provided them with the following information concerning their inventory for the year:

       Sales: 8,000 units Total revenue:.................. $172,000 

       Purchases: 10,000 units Total cost:......................... $190,000 

       Ending inventory under weighted- average:................. $ 36,667 

       Ending inventory under FIFO: $ 36,000 

Due to over-supply in the industry at year end, the price for the product had fallen to $20 and the company estimates that the costs to ship and sell the product are $2.50 per unit. 

Instructions 

a) Calculate the gross margin if Eecol decides to use the weighted-average cost formula. 

b) Calculate the gross margin if Eecol decides to use the FIFO cost formula.

 c) Based on your answers to a) and b) which cost formula would management prefer? Why? 

d) Have prices for the inventory been rising or falling during the year? 

e) What is the net realizable value of the inventory? 

f) What value should Eecol report on its financial statements for cost of goods sold and ending inventory? Support your answer.

Answer rating: 100% (QA)

a Weighted Average b FIFO Units Amounts Amountunit Amount Sales 8000 172000 22 172000 Cost of sales ... View the full answer