A company just starting business made the following four inventory purchases in June: A physical count of merchandise inventory on June 30 reveals that there are 100 units on hand. The inventory method which results in the highest gross profit for June is

Question

A company just starting business made the following four inventory purchases in June:  A physical count of merchandise inventory on June 30 reveals that there are 100 units on hand. The inventory method which results in the highest gross profit for June is

Quizplus · Accepted Answer

Using the FIFO (First-In, First-Out) method assumes that the first units purchased are the first ones sold. So, those 60 units purchased at $9 and 30 units purchased at $11 will be assumed to be sold first. This results in the cost of goods sold being calculated as $720 (60 units x $9 + 30 units x $11) and gross profit being calculated as $580 ($1,300 - $720). The other methods (specific identification and average-cost) could result in a different allocation of costs and therefore a different calculation of gross profit. However, without more information about the sales prices and quantities, it is not possible to determine which method will result in the highest gross profit.

A Company Just Starting Business Made the Following Four Inventory