a) The gross margin for March, using the moving-weighted-average method is $5,907.
Journal Entries:
March 7th
Debit Inventory $3,000
Credit Cash $3,000
Debit Cost of Goods Sold $500
Credit Inventory $500
Debit Cash $800
Credit Sales Revenue $800
March 14th
Debit Inventory $3,060
Credit Cash $3,060
Debit Cost of Goods Sold $4,032
Credit Inventory $4,032
Debit Cash $6,400
Credit Sales Revenue $6,400
March 21st
Debit Inventory $3,060
Credit Cash $3.060
Debit Cost of Goods Sold $3,036
Credit Inventory $3,036
Debit Cash $4,800
Credit Sales Revenue $4,800
March 28th
Debit Inventory $3,030
Credit Cash $3,030
Debit Cost of Goods Sold $2,525
Credit Inventory $2,525
Debit Cash $4,000
Credit Sales Revenue $4,000
b) The gross margin for March, using the first-in-first-out method is $5,920.
Journal Entries:
March 7th
Debit Inventory $3,000
Credit Cash $3,000
Debit Cost of Goods Sold $500
Credit Inventory $500
Debit Cash $800
Credit Sales Revenue $800
March 14th
Debit Inventory $3,060
Credit Cash $3,060
Debit Cost of Goods Sold $4,000
Credit Inventory $4,000
Debit Cash $6,400
Credit Sales Revenue $6,400
March 21st
Debit Inventory $3,060
Credit Cash $3,060
Debit Cost of Goods Sold $3,030
Credit Inventory $3,030
Debit Cash $4,800
Credit Sales Revenue $4,800
March 28th
Debit Inventory $3,030
Credit Cash $3,030
Debit Cost of Goods Sold $2,530
Credit Inventory $2,530
Debit Cash $4,000
Credit Sales Revenue $4,000
Workings:
Cost of Goods Sold based on Moving Weighted-Average Method
Date Description Qty Unit Cost Total Cost Ending Balance
March 1st Beginning inventory 6 $500 $3,000 $3,000
March 7th Purchases 6 $500 $3,000 $6,000 ($3,000 + $3,000)
Week 1 Cost of Sales -1 $500 $500 $5,500 ($6,000 - $500)
March 14th Purchases 6 $510 $3,060 $8,560 ($5,500 + $3,060)
Week 2 Cost of Sales -8 $504 $4,032 $4,528 ($8,560 - $4,032)
March 21st Purchases 6 $510 $3,060 $7,588 ($4,528 + $3,060)
Week 3 Cost of Sales -6 $506 $3,036 $4,552 ($7,588 - $3,036)
March 28th Purchases 6 $505 $3,030 $7,582 ($4,552 + $3,030)
Week 4 Cost of Sales -5 $505 $2,525 $5,057 ($7,82 - $2,525)
Sales revenue = 20 x $800 = $16,000
Cost of goods sold = Cost of goods available – Ending inventory
= $10,093 ($15,150 - $5,057)
Gross margin for March = $5,907 ($16,000 - $10,093)
FIFO Method:
Date Description Qty Unit Cost Total Cost Ending Balance
March 1st Beginning inventory 6 $500 $3,000 $3,000
March 7th Purchases 6 $500 $3,000 $6, 000 ($3,000 + $3,000)
Week 1 Cost of Sales -1 $500 $500 $5,500 ($6,000 - $500)
March 14th Purchases 6 $510 $3,060 $8,560 ($5,500 + $3,060)
Week 2 Cost of Sales -8 $500 $4,000 $4,560 ($8,560 - $4,000)
March 21st Purchases 6 $510 $3,060 $7,620 ($4,560 + $3,060)
Week 3 Cost of Sales -6 $3,030 $4,590 ($7,620 - $3,030)
March 28th Purchases 6 $505 $3,030 $7,620 ($4,590 + $3,030)
Week Four Cost Sales -5 $510 $2,550 $5,070 ($7,620 - $2,550)
Sales revenue = 20 x $800 = $16,000
Cost of goods sold = Cost of goods available – Ending inventory
= $10,080 ($15,150 - $5,070)
Gross margin for March = $5,920 ($16,000 - $10,080)
Thus, Velentina's gross margin or profit is the difference between its sales revenue and the cost of goods sold.
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