Assume the perpetual inventory system is used unless stated otherwise. Accounting for inventory using the perpetual inventory sy
stem—FIFO, LIFO, and Weighted-average, and comparing FIFO, LIFO, and weighted-average Steel Mill began August with 50 units of iron inventory that cost S35 each. During August, the company completed the following inventory transactions:
Units Unit Cost Unit sale price
Aug. 3 Sale 45 $85
8 Purchase 90 $54
21 Sale 85 88
30 Purchase 15 58
Requirements
1. Prepare a perpetual inventory record for the merchandise inventory using the FIFO inventory costing method.
2. Prepare a perpetual inventory record for the merchandise inventory using the LIFO inventory costing method.
3. Prepare a perpetual inventory record for the merchandise inventory using the weighted-average inventory costing method.
4. Determine the company's cost of goods sold for August using FIFO, LIFO, and weighted-average inventory costing methods.
5. Compute gross profit for August using FIFO, LIFO, and weighted-average inventory costing methods.
6. If the business wanted to maximize gross profit, which method would it select?
Units Unit Cost Unit sale price
Aug. 3 Sale 45 $85
8 Purchase 90 $54
21 Sale 85 88
30 Purchase 15 58
Requirements
1. Prepare a perpetual inventory record for the merchandise inventory using the FIFO inventory costing method.
2. Prepare a perpetual inventory record for the merchandise inventory using the LIFO inventory costing method.
3. Prepare a perpetual inventory record for the merchandise inventory using the weighted-average inventory costing method.
4. Determine the company's cost of goods sold for August using FIFO, LIFO, and weighted-average inventory costing methods.
5. Compute gross profit for August using FIFO, LIFO, and weighted-average inventory costing methods.
6. If the business wanted to maximize gross profit, which method would it select?
1 answer:
Answer:
1-3 Attached inventory record schedule based on FIFO, LIFO and WEIGHTED AVERAGE method
4. COST OF GOODS SOLD
FIFO $6,070
LIFO $6,165
WA $6,080
5. GROSS PROFIT
FIFO $5,235
LIFO $5,140
WA $5,225
6. FIFO method maximizes gross profit
Explanation:
Schedule for Inventory record is attached based on FIFO, LIFO and Weighted Average method.
FIFO - (First in, First out) this inventory method sells older inventory before the company sells the newly acquired.
LIFO - (Last in, First out) this inventory method sells the latest acquired inventory rather than the older one.
Weighted Average- This inventory method uses inventory cost by dividing total amount of inventory over total units sold.
4. COST OF GOODS SOLD
FIFO
August 3 45 x $35 = $1,575
August 21 5 x $35 = $175
80 x $54 = 4,320
TOTAL $6,070
LIFO
August 3 45 x $35 = $1,575
August 21 85 x $54 = $4,590
TOTAL $6,165
Weighted Average
August 3 45 x $35 = $1,575
August 21 85 x $53 = 4,505
TOTAL $6,080
5. Gross Profit
Total sales is $11,305 (45 x $85 = $3,825 + 85 x $88 = 7,480)
FIFO
Total sales - Cost Of Goods Sold = Gross profit
$11,305 - $6,070 = $5,235
LIFO
Total sales - Cost Of Goods Sold = Gross profit
$11,305 - $6,165 = $5,140
Weighted Average
Total sales - Cost Of Goods Sold = Gross profit
$11,305 - $6,080 = $5,225
6. FIFO maximizes gross profit profit among the 3 methods. It yields the highest profit for the month of August in the amount of $5,235
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