Cost flow methods

Question

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)

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(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)

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(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