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 250 units on hand. The inventory method which results in the highest gross profit for June is
A)the FIFO method.
B)the LIFO method.
C)the weighted average unit cost method.
D)not determinable.

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 250 units on hand. The inventory method which results in the highest gross profit for June is
A)the FIFO method. 
B)the LIFO method. 
C)the weighted average unit cost method. 
D)not determinable.

Quizplus · Accepted Answer

The FIFO (first-in, first-out) method assumes that the first items purchased are the first items sold. In this case, using the FIFO method would result in the most recent and expensive purchases (June 23 and June 25) being left in inventory, leading to a lower cost of goods sold and a higher gross profit. Since the company just started business in June, there are no prior year inventory figures to consider, and the LIFO (last-in, first-out) method may not be appropriate. The weighted average unit cost method would take into account all four purchases but may not necessarily result in the highest gross profit. Thus, the answer is A) the FIFO method.

A Company Just Starting Business Made the Following Four Inventory