Question

A company just starting business made the following purchases in August: August 1 300 units $1,560 August 12 400 units 2,340 August 24 400 units 2,520 August 30 300 units 1,980 1,400 units $8,400 A physical count of the inventory on August 31 reveals that there are 500 units on hand. What inventory method produces the lowest gross profit for August

Answer 1

Solution and Explanation:

 Purchased    

Date Description        Units Value Per unit cost  

1st august Purchase 300       1560           5.20  

12th august Purchase 400       2340                 5.85  

24th august Purchase 400      2520                6.30  

30th august Purchase 300       1980                6.60  

                      Total      1400 8400        

The Closing quantity = 500

The number of Units that have been sold = 900

Value of inventory as per First in first out ( FIFO) method is calculated as follows

$(200 * 6.30)+(300 * 6.60)$ = 3240

Therefore, the answer is $3240.

Answer 2

LIFO inventory method produces the lowest gross profit for August.

Explanation:

Applying the FIFO inventory method, the total value of the company's closing inventory as on August 31 stands at $3,240.

Applying the LIFO inventory method, the cost of goods sold stands at $5,670 (for August month).