Question

Four identical units of Item KL3 are purchased during June, as shown below. Jun. 3 10 19 Item KL3 Units Purchase 1 Purchase 2 Purchase 1 Cost Per Unit $20.00 35.00 44.00 Total Cost $ 20.00 70.00 44.00 $134.00 Total Average cost per unit 4 $33.50 ($134 ? 4 units) Assume that one unit is sold on June 23 for $55. Determine the gross profit for June and the ending inventory on June 30 using

(a) the first-in, first-out (FIFO) method and

(b) the average cost method.

Answer 1

Requirement a):

(a) FIFO

Gross profit = $35

Ending inventory = $114

Calculations:

Purchases
Date	Units	Cost per unit	Total cost
Jun. 3	1	$ 20	$ 20
Jun. 10	2	$ 35	$ 70
Jun. 19	1	$ 44	$ 44
Total	4		$ 134

.

Gross profit = Sales - Cost of goods sold

= $55 - $20

= $35

.

Ending Inventory = [(2x $35) + (1 x $44)]

= $70 + $44

= $114

.

Requirement b:

(b) Average Cost method

Gross profit = $21.50

Ending inventory = $100.50

Calculations:

*Average cost per unit = Total cost ÷ Number of units = $134 ÷ 4 = $33.50

Gross profit = Sales - Cost of goods sold

= $55 - $33.50

= $21.50

.

Ending Inventory = 3 x $33.50

= $100.50