Question

Required information Exercise 5-4A Effect of inventory cost flow (FIFO, LIFO, and weighted average) on gross margin LO 51 (The following information applies to the questions displayed below! The following information pertains to Mason Company for Year 2 Beginning inventory Units purchased 16 units $53 $126 eachi All purchases and sales were made with cash Ending inventory consisted of 54 units Mason solo 292 Operating expenses amounted to $3825

Answer 1

FIFO- First In First Out. It means the inventory which is purchased first will be sold first.

LIFO- Last In First Out. It means the inventory which is purchased last will be sold first and accordingly the inventory will be reduced from the remaining purchased at last.

Weighted Average- It is the average of the Opening stock and Purchases made during the year.the formula for the same would be: [(Total Opening stock value + Purchases)/Total no. of units)]

=(5880+25578)/(140+546) = 31458/546 = 57.62 shown as below

Particulars	Units	$/unit	Total($)
Opening Stock	140	42.00	5,880
Purchase	406	63.00	25,578
Total purchase	546	57.62	31,458

Summary of Question
Particulars	Units	$/unit	Total($)
Opening Stock	140	42.00	5,880
Purchase	406	63.00	25,578
Sold	492	126.00	61,992
closing Stock	54
Operating Expenses			3,825

The following answer are provided herewith:

Answer to a & b.

FIFO
Particulars	Units	$/unit	Total($)
Sold                                                                   (A)	492	126.00	61,992
Purchase:
Opening Stock                                             (B)	140	42.00	5,880
Purchase                                                        (C)	352	63.00	22,176
Total Purchase                                     (D=B+C)			28,056
Gross Profit                                            (E=A-D)			33,936
Operating Expenses                                  (F)			3,825
Net Profit                                               (G=E-F)			30,111

LIFO
Particulars	Units	$/unit	Total($)
Sold                                                                    (A)	492	126.00	61,992
Purchase:
Purchase 2                                                      (B)	406	63.00	25,578
Purchase 1                                                      (C)	86	42.00	3,612
Total Purchase                                     (D=B+C)			29,190
Gross Profit                                            (E=A-D)			32,802
Operating Expenses                                  (F)			3,825
Net Profit                                               (G=E-F)			28,977

Weighted Average
Particulars	Units	$/unit	Total($)
Sold                                                                    (A)	492	126.00	61,992
Purchase 2                                                      (B)	492	57.62	28,349
Gross Profit                                               (C=A-B)			33,643
Operating Expenses                                 (D)			3,825
Net Profit                                               (E=C-D)			29,818

Answer to b.

Valuation of Inventory

FIFO
Particulars	Units	$/unit	Total($)
Opening Stock	140	42.00	5,880
Purchase	406	63.00	25,578
Sold	492	126.00	61,992
closing Stock	54	63.00	3,402

LIFO
Particulars	Units	$/unit	Total($)
Opening Stock	140	42.00	5,880
Purchase	406	63.00	25,578
Sold	492	126.00	61,992
closing Stock	54	42.00	2,268

Weighted Average
Particulars	Units	$/unit	Total($)
Opening Stock	140	42.00	5,880
Purchase	406	63.00	25,578
Total purchase	546	57.62	31,458
Sold	492	126.00	61,992
closing Stock	54	57.62	3,111