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 200 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 200 units on hand. The inventory method which results in the highest gross profit for June is

Quizplus · Accepted Answer

The FIFO method assumes the first items purchased are the first items sold. In this case, it would result in the highest gross profit because the first items purchased (at a lower cost) would be matched with the revenue from the first sales, leaving newer (more expensive) inventory on hand. Since the company just started in June, there would be no older inventory to match with sales, making the specific identification method not applicable. The average-cost method may not result in the highest gross profit because it calculates an average cost per unit, which may not reflect the actual cost of the units sold. Therefore, the best choice is A) the FIFO method.

A Company Just Starting Business Made the Following Four Inventory