Question

Cost Flow Methods

The following three identical units of Item Alpha are purchased during April:

		Item Alpha		Units		Cost
Apr.	2	Purchase		1		$76
	14	Purchase		1		81
	28	Purchase		1		83
	Total			3		$240
	Average cost per unit					$80	($240 ÷ 3 units)

Assume that one unit is sold on April 30 for $132.

Determine the gross profit for April and ending inventory on April 30 using the (a) first-in, first-out (FIFO); (b) last-in, first-out (LIFO); and (c) weighted average cost methods.

	Gross Profit	Ending Inventory
a. First-in, first-out (FIFO)
b. Last-in, first-out (LIFO)
c. Weighted average cost

Answer 1

Correct Answer:

Working:

	FIFO	LIFO	Weighted Average
Cost of Ending Inventory	$               164	$                                157	$                      160
Gross profit	$                 49	$                                   42	$                        45

Working:

FIFO
A	Total Units Available for sale			3			$                    240
	Units Sold			1
	Ending Inventory Units			2
	Valuation
	Cost of Goods Sold		1		$                  76.00		$                      76
B	Total Cost of Goods Sold		1	units			$                      76
A-B	Ending Inventory		2	units			$                    164

	LIFO
A	Total Units Available for sale			3			$                    240
	Units Sold			1
	Ending Inventory Units			2
	Valuation
	Cost of Goods Sold		1		$                  83.00		$                      83
B	Total Cost of Goods Sold		1	units			$                      83
A-B	Ending Inventory		2	units			$                    157

	Weighted Average
A	Total Units Available for sale			3			$                    240
	Units Sold			1
	Ending Inventory Units			2
	Valuation
	Cost of Goods Sold		1		$                  80.00	$              80.00	$                      80
B	Total Cost of Goods Sold		1	units			$                80.00
A-B	Ending Inventory		2	units			$              160.00

End of answer.

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