Comparison of Inventory Methods
Dutch Truck Sales sells semitrailers. The current inventory includes the following five semitrailers (identical except for paint color) along with purchase dates and costs:
|
Semitrailer |
Purchase Date |
Cost |
|
1 |
April 3, 2008 |
$73,000 |
|
2 |
April 10, 2008 |
70,000 |
|
3 |
April 10, 2008 |
71,000 |
|
4 |
May 4, 2008 |
77,000 |
|
5 |
May 12, 2008 |
78,500 |
On May 20, 2008, a trucking firm purchased semitrailer 3 from Dutch for $86,000.
1. Compute the gross margin on this sale assuming Dutch uses:
(a) FIFO inventory method
(b) LIFO inventory method
(c) Specific identification method
2. Which inventory method do you think Dutch should use? Why?