Question

Tamarisk, Inc. just began business and made the following four inventory purchases in June: June 1 June 10 June 15 June 28 156 units 208 units 208 units 156 units $1080 1620 1750 1370 $5820 A physical count of merchandise inventory (rounded to whole dollar) on June 30 reveals that there are 220 units on hand. The inventory method which results in the highest gross profit for June is not determinable. the LIFO method. the FIFO method the average cost method.

Answer 1

Under LIFO method : last in first out which means begging of purchase is considered as ending inventory

Value of ending inventory :

JUNE 10 rate per unit= Purchase value / units = 1620/208= 7.79

156 ending inventory from June 1 and remaining 64 From June 10 so that 64× 7.79= 498

Ending Value of inventory is = 1080+498=1578

Fifo method : first in first out

June 15 rate per unit= 1750/208= 8.41 and remaining unit value is = 8.41× 64= 538

Ending value of inventory = 1370+538= 1908

Average cost method:

Rate per unit = total amount of purchase / total units= 5820/728= 7.99

Ending inventory = 7.99× 220= 1759

As per available of ending inventory FIFO has more value = 1908 so that fifo method produce the more gross profit.

Higher the value of ending inventory and lower the cost of goods sold will result in higher the gross profit