Final answer:
The difference in gross margin between the FIFO and LIFO cost flow assumptions can be calculated by comparing the ending inventory values under each assumption. Subtract the cost of goods sold (COGS) under each assumption from the revenue to find the difference.
Step-by-step explanation:
The difference in gross margin between the FIFO and LIFO cost flow assumptions can be calculated by comparing the ending inventory values under each assumption. FIFO (First-In, First-Out) assumes that the earliest inventory purchases are sold first, while LIFO (Last-In, First-Out) assumes that the most recent inventory purchases are sold first.
To calculate the gross margin difference, subtract the cost of goods sold (COGS) under each assumption from the revenue. The difference between the two gross margin values will give you the difference in gross margin between FIFO and LIFO.
For example, if the revenue is $100,000, the COGS under FIFO is $50,000, and the COGS under LIFO is $60,000, the difference in gross margin between the two assumptions would be $40,000 (100,000 - 50,000 - 60,000 = -10,000).