COST FLOW ASSUMPTION

ABC Inc distributes widgets components and has just completed another year of operations. 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:

Beginning Inventory	1,500 units	$31,500
Purchase #1	4,000 units	$88,000
Sale #1	2,000 units
Purchase #2	2,500 units	$57,500
Sale #2	4,000 units
Sale #3	1,700 units

Total revenues for the period were $192,500

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.

Required: a. Calculate the gross margin if ABC decides to use the moving average cost flow assumption b. Calculate the gross margin if ABC decides to use the FIFO cost flow assumption c. Based on your answers to (a) and (b) which cost flow assumption would management prefer? Why? d. What is the market value of the inventory for applying the lower of cost and market rule? e. What value should ABC report on its financial statement for cost of goods sold and ending inventory? Support your answer.