Question

Cost Flow Methods

The following three identical units of Item K113 are purchased during April:

	Item K113		Units		Cost
April 2	Purchase		1		$129
April 14	Purchase		1		132
April 28	Purchase		1		135
Total			3		$396
Average cost per unit					$132	($396 ÷ 3 units)

Assume that one unit is sold on April 30 for $181. 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

a.

Under the First in first out (FIFO) method of inventory valuation, Cost of goods sold consists of the units from beginning inventory and earliest purchases. Ending inventory consists of the units from recent purchases.

1 unit sold consists of April 2 purchases.

b.

Under the Last in first out (LIFO) method of inventory valuation, Cost of goods sold consists of the units from recent purchases. Ending inventory consists of the units from beginning inventory and earliest purchases.

1 unit sold consist of April 28 purchases.

c.

Weighted average cost = $132

Gross profit = Sales - Cost of goods sold

	Gross profit	Ending Inventory
a. FIFO	$52 ($181-$129)	$267 ($132+$135)
b. LIFO	$46 ($181-$135)	$261 ($129+$132)
c. Weighted average cost	$49 [$181-(1*$132)]	$264 (2*$132)