Question

Hoover Company purchased two identical inventory items. The item purchased first cost $33.00. The item purchased second cost $35.00. Then Hoover sold one of the inventory items for $62.00. Based on this information, the amount of:

Answer 1

Answer:

The amount of gross margin is 28 if Hoover uses the weighted average cost method

Explanation:

Based on this information, the amount of gross margin is 28 if Hoover uses the weighted average cost method.

When using the weighted average method, you divide the cost of goods available for sale by the number of units available for sale, which yields the weighted-average cost per unit.

From the scenario, the two identical inventory items purchased are:

First cost ........$33.00.

Second cost ..$35.00.

Weighted Cost = (33 x 1) + (35 x 1)] / 2 = $34

Gross profit = $62.00 (sales price) - $34 (cost) = $28

Answer 2

Answer:

If Hoover Company used the LIFO method:

gross margin = sales price - purchase price of second item = $62 - $35 = $27

Inventory value = $33

If Hoover Company used the FIFO method:

gross margin = sales price - purchase price of first item = $62 - $33 = $29

inventory value = $35

If Hoover Company used the weighted average method:

gross margin = sales price - average price = $62 - [($33 + $35) / 2] = $62 - $34 = $28

inventory value = $34