A company just starting business made the following four inventory purchases in June: $\begin{array}{lll}\text { June } 1 &150 \text { units } & \$390\
\text { June } 10 & 200 \text { units } & 598 \
\text { June } 15 & 200 \text { units } & 630 \
\text { June } 28 & 150 \text { units } & 510 \
&&\$2,128
\end{array}$ A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using a periodic inventory system, the inventory method which results in the highest gross profit for June is

Question

Quizplus · Accepted Answer

Under the FIFO (First-in, First-out) method, the oldest units (first purchases) are sold first, and the cost of the inventory sold is based on the cost of the oldest units. In this case, the cost of 100 units sold would be $3,000 (2,000 at $12 and 1,000 at $11), resulting in a higher gross profit than the LIFO method, which would result in a cost of $2,900 for 100 units sold (2,000 at $10 and 1,000 at $11). The weighted average unit cost method could also be used, but it would depend on the exact calculation of the weighted average cost. Therefore, the best choice is A) the FIFO method.

A Company Just Starting Business Made the Following Four Inventory