Cost Flow Methods Three identical units of Item PX2T are purchased during July,
ID: 1220226 • Letter: C
Question
Cost Flow Methods Three identical units of Item PX2T are purchased during July, as shown below. Item PX2T Units Cost July 9 Purchase 1 $224 July 17 Purchase 1 225 July 26 Purchase 1 226 Total 3 $675 Average cost per unit $225 ($675 ÷ 3 units) Assume that one unit is sold on July 31 for $275. Determine the gross profit for July and ending inventory on July 31 using the (a) first-in, first-out (FIFO); (b) last-in, first-out (LIFO); and (c) weighted average cost methods. Gross Profit Ending Inventory
a. First-in, first-out (FIFO) $ Gross Profit _____ $ Ending Inventory $______
b. Last-in, first-out (LIFO) $Gross Profit ________ $ Ending Inventory $______
c. Weighted average cost : Gross Profit $_______ Ending Inventory $___
Explanation / Answer
Following is the given table -
$226
Average cost per unit = Total cost/Total units purchased = $675/3 = $225 per unit
Sale price = $275
(a) First-In, First-Out (FIFO) -
In this method, units purchased at the earliest are sold first.
In given case, unit purchased at the earliest is the unit purchased on July 9.
Cost of unit purchased on July 9 = $224
Sale price = $275
Gross profit = Sale price - Cost of unit purchased on July 9
= $275 - $224
= $51
The gross profit is $51.
Ending inventory = Cost of unit purchased on July 17 + Cost of unit purchased on July 26
= $225 + $226
= $451
The ending inventory is $451.
(b) Last-In, First-Out (LIFO) -
In this method, units purchased at the last are sold first.
In given case, unit purchased at the last is the unit purchased on July 26.
Cost of unit purchased on July 26 = $226
Sale price = $275
Gross profit = Sale price - Cost of unit purchased on July 26
= $275 - $226
= $49
The gross profit is $49.
Ending inventory = Cost of unit purchased on July 9 + Cost of unit purchased on July 17
= $224 + $225
= $449
The ending inventory is $449.
(c) Weighted average cost -
Average cost per unit = $225
Sale price = $275
Gross Profit = Sale price - Average cost per unit
= $275 - $225
= $50
The gross profit is $50.
Ending inventory = Average cost per unit * Number of units unsold
= $225 * 2
= $450
The ending inventory is $450.
Date Item Unit Cost July 9 PX2T 1 $224 July 17 PX2T 1 $225 July 26 PX2T 1$226
Total 3 $675