Question

Echo Sound Company just began business and made the following four inventory purchases in June: June 1 150 units $ 1,040 June 10 200 units 1,560 June 15 200 units 1,680 June 28 150 units 1,320 $5,600 A physical count of merchandise inventory on June 30 reveals that there are 210 units on hand. The inventory method which results in the highest gross profit for June is

Answer 1

Answer:

FiFo method as prices are continuously increasing

Explanation:

Date                Units               Cost                    Per Unit Cost

June 1             150 units            $ 1,040               6.93

June 10           200 units              1,560               7.8

June 15          200 units               1,680               8.4

June 28          150 units               1,320               8.8

                                                  $5,600

As the unit price is increasing the method which yields the highest gross profit would be FIFO.But in some cases the income is overstated as the beginning inventory is too old to account for . Similarly Lifo gives lower net income but that too is not very beneficial when the inventory is almost obsolete.

The average method gives a measure in between FIFO and LIFO.