Hoover Company purchased two identical inventory items. The item purchased first cost $41.00. The item purchased second cost $45.50. Then Hoover sold one of the inventory items for $60. Based on this information:A) the amount of ending inventory is $45.50 if Hoover uses the LIFO cost flow method. B) the amount of gross margin is $16.75 if Hoover uses the weighted average cost flow method. C) the amount of cost of goods sold is $45.50 if Hoover uses the FIFO cost flow method. D) the amount of cost of goods sold is $41.00 if Hoover uses the LIFO cost flow method.

B) the amount of gross margin is $16.75 if Hoover uses the weighted average cost flow method.

Explanation:

Weighted Average cost flow method= $ 41+ $ 45.5/2= 86.5/2=$ 43.25

Sales Price =                              $ 60

Less Unit Sold at                       $ 43.25

Gross Margin                              $ 16.75

Only option B is correct

Option A is incorrect because LIFO would assign $ 41 to ending inventory.

Option C is incorrect  because FIFO would assign $ 41 to cost of goods sold

Option D is incorrect because LIFO would assign $ 44.4 to cost of goods sold.

C is the answer.

Explanation:

If Hoover uses the weighted average cost flow method, the two items are added up and weighed or divided by two as in this case.  This gives a total cost of $86.50 ($41 + $45.50) and an average cost of $43.25 ($86.50/2).  Since the item was sold for $60, there is a gross margin of $16.75 ($60 - $43.25).

Answer A is wrong because if Hoover uses the LIFO method, the ending inventory would have been valued at $41 and not $45.50, which represents the value of item sold.

Answer C is wrong because if Hoover uses the FIFO method, the cost of goods sold is $41 and not $45.50.

Similarly, answer D is wrong because if Hoover uses the LIFO method, the cost of goods sold is $45.50 and not $41.

Note: LIFO means Last In, First Out while FIFO means First In, First Out.    They are cost flow methods of valuing goods sold and inventory, together with the weighted average method.

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