Question

Cost flow methods

The following three identical units of Item P401C are purchased during April:

Date Item Beta Units Cost
Apr. 2 Purchase 1 $202
Apr. 15 Purchase 1 206
Apr. 20 Purchase 1 210
Total 3 $618
Average cost per unit ($618 ÷ 3 units) $206
Assume that one unit is sold on April 27 for $258.

Determine the gross profit for April and ending inventory on April 30 using the (a) first-in, first-out (FIFO); (b) last-in, first-out (LIFO); and (c) weighted average cost method.


Line Item Description Gross Profit Ending Inventory
a. First-in, first-out (FIFO) $fill in the blank 1
$fill in the blank 2
b. Last-in, first-out (LIFO) $fill in the blank 3
$fill in the blank 4
c. Weighted average cost

Answer 1

To calculate the gross profit and ending inventory using FIFO, LIFO, and weighted average cost methods, we can follow these steps:

### Given:
- Purchases:
- Apr. 2: 1 unit at $202
- Apr. 15: 1 unit at $206
- Apr. 20: 1 unit at $210

Total cost for 3 units = $202 + $206 + $210 = $618

Sales:
- Apr. 27: 1 unit sold for $258

### (a) First-in, First-out (FIFO)
- **Cost of goods sold (COGS)**: The first unit purchased is sold first.
- Cost of COGS = Cost of the unit purchased on Apr. 2 = $202
- **Gross Profit**:
- Gross Profit = Sales Revenue - COGS = $258 - $202 = $56
- **Ending Inventory**:
- Remaining units = 2 (Apr. 15 and Apr. 20)
- Ending inventory = Cost of the unit from Apr. 15 + Cost of the unit from Apr. 20
- Ending Inventory = $206 + $210 = $416

**FIFO Results**:
- Gross Profit: **$56** (fill in the blank 1)
- Ending Inventory: **$416** (fill in the blank 2)

---

### (b) Last-in, First-out (LIFO)
- **Cost of goods sold (COGS)**: The last unit purchased is sold first.
- Cost of COGS = Cost of the unit purchased on Apr. 20 = $210
- **Gross Profit**:
- Gross Profit = Sales Revenue - COGS = $258 - $210 = $48
- **Ending Inventory**:
- Remaining units = 2 (Apr. 2 and Apr. 15)
- Ending inventory = Cost of the unit from Apr. 2 + Cost of the unit from Apr. 15
- Ending Inventory = $202 + $206 = $408

**LIFO Results**:
- Gross Profit: **$48** (fill in the blank 3)
- Ending Inventory: **$408** (fill in the blank 4)

---

### (c) Weighted Average Cost
- **Average Cost per Unit**:
- Average cost = Total cost / Total units = $618 / 3 = $206
- **Cost of Goods Sold (COGS)**:
- COGS = Average Cost × Units Sold = $206 × 1 = $206
- **Gross Profit**:
- Gross Profit = Sales Revenue - COGS = $258 - $206 = $52
- **Ending Inventory**:
- Remaining units = 2
- Ending Inventory = Average Cost × Remaining Units = $206 × 2 = $412

**Weighted Average Cost Results**:
- Gross Profit: **$52**
- Ending Inventory: **$412**

### Summary of Results
- a. First-in, first-out (FIFO):
- Gross Profit: **$56**
- Ending Inventory: **$416**

- b. Last-in, first-out (LIFO):
- Gross Profit: **$48**
- Ending Inventory: **$408**

- c. Weighted average cost:
- Gross Profit: **$52**
- Ending Inventory: **$412**