Question

Given the following information and assuming beginning inventory was zero and a periodic inventory system was used, what is the gross profit at the end of the period using the FIFO, LIFO, and average cost methods?
Purchases

Sales
20 units at $50 15 units at $60
35 units at $40 35 units at $45
85 units at $30 85 units at $35
FIFO LIFO Cost Average

A.
$650 $750 $677

B.
$650 $750 $990

C.
$677 $650 $677

Answer 1

Answer:

A.  $650 $750 $677

Explanation:

period                 purchases                            sales

1                        20 units at $50                15 units at $60

2                       35 units at $40                35 units at $45

3                       85 units at $30                85 units at $35

total revenue = $900 + $1,575 + $2,975 = $5,450

COGS:

• using FIFO = (15 x $50) + (5 x $50) + (30 x $40) + (5 x $40) + (80 x $30) = $4,800
• using LIFO = (15 x $50) + (35 x $40) + (85 x $30) = $4,700
• cost average = ($4,950 / 140 units) x 135 units = $4,773.21

Gross profit:

• using LIFO = $5,450 - $4,800 = $650
• using FIFO = $5,450 - $4,700 = $750
• using cost average = $5,450 - $4,773.21 = $676.79 ≈ $677