Question

During the year, Trombley Incorporated has the following inventory transactions.

Date	Transaction	Number of Units	Unit Cost	Total Cost
Jan. 1	Beginning inventory	11	$ 13	$ 143
Mar. 4	Purchase	16	12	192
Jun. 9	Purchase	21	11	231
Nov. 11	Purchase	21	9	189
		69		$ 755

For the entire year, the company sells 51 units of inventory for $21 each.

A: Using FIFO, calculate ending inventory, cost of goods sold, sales revenue, and gross profit.

B:Using LIFO, calculate ending inventory, cost of goods sold, sales revenue, and gross profit

C:Using weighted-average cost, calculate ending inventory, cost of goods sold, sales revenue, and gross profit. (Round "Weighted-Average Cost per unit" to 2 decimal places.)

D: Which method will result in higher profitability when inventory costs are declining?

Answer 1

Part A	FIFO
	Cost of goods sold
		FIFO	Units	Unit cost	Cost of goods sold
		From beginning inventory	11	13	143
		From first purchase	16	12	192
		From second purchase	21	11	231
		From third purchase	3	9	27
		Total	51		593
	Ending inventory
		From third purchase	18	9	162
	Ending inventory units = (11+16+21+21-51) = 18 units
	Sales value = (51*21) = 1,071
	Gross profit = (Sales value-Cost of goods sold) = (1,071-593) = 478
Part B	LIFO
	Cost of goods sold
		FIFO	Units	Unit cost	Cost of goods sold
		From third purchase	21	9	189
		From second purchase	21	11	231
		From first purchase	9	12	108
		Total	51		528
	Ending inventory
		From first purchase	7	12	84
		From beginning inventory	11	13	143
			18		227
	Sales value = (51*21) = 1,071
	Gross profit = (Sales value-Cost of goods sold) = (1,071-528) = 543
Part C	Weighted average
			Units	Average cost	Total
	Cost of goods sold		51	10.94	558
	Ending inventory		18	10.94	197
	Sales value = (51*21) = 1,071
	Gross profit = (Sales value-Cost of goods sold) = (1,071-558) = 513
	Average cost
	11	13	143
	16	12	192
	21	11	231
	21	9	189
	69		755
	Average cost = (755 / 69) = 10.94
Part D	LIFO will result in higher profitability of $543 when inventory costs are declining.