Question 3 a) On March 1st, Valentina had six paddleboards ($500 cost). Each Monday this month (March 7th,
14th, 21st, and 28th), Valentina purchased six paddleboards from her supplier. The price increased to
$510 on March 12th, but dropped to $505 on March 28th. Valentina sold one paddleboard in week one
(March 1st to 7th), eight in week two, six in week three, and five in week four. Assuming the selling price
was $800 per paddleboard and Valentina uses the moving-weighted-average method, what was her
gross margin for March? Make all necessary journal entries and SHOW YOUR WORK!
b) Repeat 3a, but using the first-in-first-out method.

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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