Question

Cost Flow Methods

The following three identical units of Item JC07 are purchased during April:

Item JC07

Units

Cost

April 2	Purchase		1		$283
April 14	Purchase		1		284
April 28	Purchase		1		285
Total			3		$852

Average cost per unit    $284($852 ÷ 3 units)

Assume that one unit is sold on April 30 for $403. Determine the gross profit for April and ending inventory on April 30 using the (a) first-in, first-out (FIFO); (b) last-in, first-out (LIFO); and (c) weighted average cost methods.

Gross Profit   Ending Inventory

a. First-in, first-out (FIFO)   

b. Last-in, first-out (LIFO)

c. Weighted average cost

Answer 1

Solution

	Gross profit	Ending Inventory
FIFO	$                 120	$ 569
LIFO	$                 118	$ 567
Weighted Average	$                 119	$ 568

Working

Average Cost of Inventory
Units	(A)	3
Total Cost	(B)	$ 852
Average Cost	(C=B/A)	$                 284.00

.

FIFO
Total Units Available for sale		3
Units Sold		1
Closing Stock in Units		2
Valuation
Ending Inventory	1	@	$           284.00	$ 284
	1	@	$           285.00	$ 285
Value Of Ending Inventory				$ 569
Cost of Goods sold				$ 283
LIFO
Total Units Available for sale		3
Units Sold		1
Closing Stock in Units		2
Valuation
Ending Inventory	1	@	$           283.00	$ 283
	1	@	$           284.00	$ 284
Value Of Ending Inventory				$                  567
Cost of Goods sold	852 minus 567			$                  285
Weighted Average method
Total Units Available for sale		3
Units Sold		1
Closing Stock in Units		2
Valuation
Ending Inventory	2	@	$           284.00	$                  568
Value Of Ending Inventory				$                  568
Cost of Goods sold	(Total Purchase and opening stock Minus Closing Stock)			$                  284

.

	Sales	Cost of Goods sold	Gross profit
FIFO	$                     403	$                       283	$                 120
LIFO	$                     403	$                       285	$                 118
Weighted Average	$                     403	$                       284	$                 119