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Chapter 6: Q34PGB_5 (page 370)

Steel It began January with 55 units of iron inventory that cost \(35 each. During January, the company completed the following inventory transactions:

Units Unit Cost Unit Sales Price

Jan. 3 Sale 45 \) 83

8 Purchase 75 $ 52

21 Sale 70 85

30 Purchase 10 55

Requirements

5. Compute gross profit for January using FIFO, LIFO, and weighted-average inventorycosting methods.

Short Answer

Expert verified

Gross profit under FIFO, LIFO, and Average cost is $4,640, $4,470, $4,610, respectively.

Step by step solution

01

Computation of total revenue

TotalRevenue=SalevalueofJan3+SalevalueofJan21=45×$83+70×$85=$3,735+$5,950=$9,685

02

Gross profit under FIFO

GrossProfit=TotalRevenue-COGSunderFIFO=$9,685-$5,045=$4,640

03

Gross profit under LIFO

GrossProfit=TotalRevenue-COGSunderLIFO=$9,685-$5,215=$4,470

04

Gross profit under the weighted average method

GrossProfit=TotalRevenue-COGSunderweightedaverage=$9,685-$5,075=$4,610

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Most popular questions from this chapter

Under a perpetual inventory system, what are the four inventory costing methods, and how does each method determine ending merchandise inventory and cost of goods sold?

Question:Ward Hardware does not expect costs to change dramatically and wants to use an inventory costing method that averages cost changes.

Requirements

1. Which inventory costing method would best meet Ward’s goal?

2. Assume Ward wanted to expense out the newer purchases of goods instead.

Which inventory costing method would best meet that need?

Clarmont Resources, which uses the FIFO inventory costing method, has the following account balances at May 31, 2019, prior to releasing the financial statements for the year:

Merchandise Inventory, ending \( 13,500

Cost of Goods Sold 68,000

Net Sales Revenue 123,000

Clarmont has determined that the current replacement cost (current market value) of the May 31, 2019, ending merchandise inventory is \)12,400.

Requirements

2. What value would Clarmont report on the balance sheet at May 31, 2019, for merchandise inventory?

Determining inventory accounting principles

Ward Hardware used the FIFO inventory costing method in 2018. Ward plans to continue using the FIFO method in future years. Which accounting principle is most relevant to Ward’s decision?

Question:Assume that Toys Galore store bought and sold a line of dolls during December as follows:

Dec. 1 Beginning merchandise inventory 13 units @ \( 9 each

8 Sale 8 units @ \) 22 each

14 Purchase 16 units @ \( 14 each

21 Sale 14 units @ \) 22 each

Requirements

2. Compute the cost of goods sold, cost of ending merchandise inventory, and grossprofit using the LIFO inventory costing method.
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