Winslow Products, which uses a periodic inventory system, began 2014 with 6,000 units of inventory that cost a total of $90,000. During 2014, Winslow Products purchased merchandise on account as follows:
Purchase 1 (10,000 units at $14 per unit) ................... $140,000
Purchase 2 (20,000 units at $12 per unit) ................... 240,000
At year end, the physical count indicated 20,000 units of inventory on hand.
Required
1. How many units did Winslow Products sell during the year? The sale price per unit was $28. Determine Winslow's sales revenue for the year.
2. Compute cost of goods sold by the weighted-average method. Round average cost per unit to the nearest cent and all other amounts to the nearest dollar. Then determine gross margin for the year.
3. Compute cost of goods sold by the FIFO method. Then determine gross margin for the year.
4. Compare the gross margins you calculated for each inventory method in Requirements 2 and 3. What conclusions can you draw when the purchase prices for inventory are falling?