Question

Crane Company had 450 units of “Dink” in its inventory at a cost of $4 each. It purchased, for $2350, 280 more units of “Dink”. Crane then sold 580 units at a selling price of $9 each, resulting in a gross profit of $1670. The cost flow assumption used by Crane

FIFO

LIFO

Cannot be determined

weighted average

Answer 1

Beginning inventory = 450 units @ $4.00
Beginning inventory = $1,800

Purchases (280 units) = $2,350

Cost of Goods available for sale = Beginning inventory + Purchases
Cost of Goods available for sale = $1,800 + $2,350
Cost of Goods available for sale = $4,150

Number of units available for sale = 450 + 280
Number of units available for sale = 730

Number of units sold = 580

Number of units in ending inventory = Number of units available for sale - Number of units sold
Number of units in ending inventory = 730 - 580
Number of units in ending inventory = 150

Sales = Selling price per unit * Number of units sold
Sales = $9.00 * 580
Sales = $5,220

Gross profit = Sales - Cost of goods sold
$1,670 = $5,220 - Cost of goods sold
Cost of goods sold = $3,550

Cost of ending inventory = Cost of Goods available for sale - Cost of goods sold
Cost of ending inventory = $4,150 - $3,550
Cost of ending inventory = $600

FIFO:

Cost of ending inventory = $2,350/280 * 150
Cost of ending inventory = $1,259

LIFO:

Cost of ending inventory = $4.00 * 150
Cost of ending inventory = $600

Weighted Average:

Cost per unit = Cost of Goods available for sale / Number of units available for sale
Cost per unit = $4,150 / 730
Cost per unit = $5.685

Cost of ending inventory = Cost per unit * Number of units in ending inventory
Cost of ending inventory = $5.685 * 150
Cost of ending inventory = $853

So, Crane Company is using LIFO inventory method.