Question

 

Ranieri Company maintains perpetual inventories. During June, the following changes in inventory took place:

                        6/1       Balance              1,200 units @ $3.00

                        6/7       Sold                       700 units @ $12.00

                        6/10     Purchased             600 units @ $3.20

                        6/18     Purchased          1,000 units @ $3.30

                        6/19     Sold                     1,900 units @ $12.00

                        6/24     Purchased          1,300 units @ $3.40

                        6/25     Sold                        800 units @ $12.00

                        6/28     Purchased          1,500 units @ $3.60

                        6/30     Sold                     1,300 units @ $12.00

Required:

Determine the cost of ending inventory using the FIFO, LIFO, and average cost methods.

What is the amount of gross profit for using each method?

If Ranieri wants to follow GAAP, which method should be used?

Answer 1

Solution	Calculation of closing stock= Opening Stock+Total purchases- Total Sales
			= 1200+600+1000+1300+1500-700-1900-800-1300
	Closing Stock	=	900	Units
	Calculation of closing stock
	Under FIFO
	In this method, The stock left will be from the last purchases made.
	Hence here, the whole stock will be from purchases made from 28th June.
	Cost of inventory = Total units* Cost per unit
		= 900*3.6
		3240
	Under LIFO
	In this method, The stock left will be from the first purchases made.
	Hence here, the whole stock will be from purchases made from 28th June.
	Cost of inventory = As per the table below
		'= 600+1700+720
		3020
		Dates	Stock left after sales	Cost per unit	Total Cost
		1	200	3	600
		24	500	3.4	1700
		28	200	3.6	720
	Under average cost method
	In this method the cost cost is calculated and divided by number of unit to calculate cost [per unit
	Calculation of total cost
	Dates	Purchase units	Cost per unit	Total Cost
	1	1200	3	3600
	10	600	3.2	1920
	18	1000	3.3	3300
	24	1300	3.4	4420
	28	1500	3.6	5400
	Total	5600		18640
	Cost per unit	= Total Cost/ Total Units
		==18640/5600
		3.33
	Total cost under average cost= Cost per unit* number of units
		= 900*3.33
		=2997
	Calculation of gross profit
		FIFO	LIFo	Average cost
	Total Sales	56400	56400	56400
	Closing Stock	3240	3020	2997
	Less: Purchases including opening stock	18640	18640	18640
	Gross profit	41000	40780	40757
	Calculation of total Sales
	Dates	Sold units	Sale price	Total
	7	700	12	8400
	19	1900	12	22800
	25	800	12	9600
	30	1300	12	15600
	Total	4700		56400