required information\nthe following information was drawn from the inventory records of alpha company as of…

required information\nthe following information was drawn from the inventory records of alpha company as of december, year 2.\nbeginning inventory (purchased in year 1) 380 units @ $5 each\npurchases made in year 2 980 units @ $8 each\nunits sold 1,080 units @ $12 each\nwhich of the following is the amount of the gross margin shown on the year 2 income statement assuming alpha uses a lifo cost flow method\nmultiple choice\n$4,620\n$7,500\n$8,340\n$5,460

required information\nthe following information was drawn from the inventory records of alpha company as of december, year 2.\nbeginning inventory (purchased in year 1) 380 units @ $5 each\npurchases made in year 2 980 units @ $8 each\nunits sold 1,080 units @ $12 each\nwhich of the following is the amount of the gross margin shown on the year 2 income statement assuming alpha uses a lifo cost flow method\nmultiple choice\n$4,620\n$7,500\n$8,340\n$5,460

Answer

Explanation:

Step1: Calculate cost of goods sold (COGS) using LIFO

Under LIFO, we assume the last - in (Year 2 purchases) units are sold first. The number of units sold is 1,080. The number of units purchased in Year 2 is 980. So, we first use all 980 units from Year 2 purchases and then (1080 - 980)=100 units from the beginning inventory. COGS = (980×$8)+(100×$5)=$7840 + $500=$8340

Step2: Calculate total sales

Total sales = Number of units sold×Selling price per unit Total sales = 1080×$12 = $12960

Step3: Calculate gross margin

Gross margin=Total sales - COGS Gross margin=$12960 - $8340=$4620

Answer:

A. $4,620