Question

A company had beginning inventory of 5 units that cost $10 each. During the month, 15 units were purchased for $11 each. The company sold 12 units during the month and had 8 remaining in ending inventory. If the company uses FIFO to calculate cost of goods sold, then its gross profit will be $5 than if it had used LIFO. (Enter one word per blank.)

Answer 1

Answer:

True

Explanation:

Using FIFO,

Under First in First out method, items that were purchased first will be availed for sale first.  In this case, the opening stock of 5 at $10 items will be sold first.  An additional 7 units will be required from the next batch of purchases at $11.

The costs of the first 12 units will be

=(5 x 10)+ (7 x 11)

=50 +77

=$127

With LIFO, the items acquired last will be sold first. In this case, the 12 items sold will come the batch of 15 purchased at $11 in the months

Using LIFO, the cost of goods available for sale.

=12 X $11

=132

The difference is the costs of goods available for sale is $ 5, with FIFO having a lower cost. It means FIFO profits will be $5 more.