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

Item Beta Units Cost

April 2 Purchase 1 $100

15 Purchase 1 120

20 Purchase 1 140

Total 3 $360

Average cost per unit $120 ($360 : 3 units)

Assume that one unit is sold on April 27 for $300.

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.

Gross Profit Ending Inventory

a. First-in, first-out (FIFO) $ $

b. Last-in, first-out (LIFO) $ $

c. Weighted average cost $

a. Gross Profit = $200 and Ending Inventory = $280

b. Gross Profit = $160 and Ending Inventory = $220

c. Gross Profit = $180 and Ending Inventory = $240

Explanation:

FIFO

FIFO method assumes that the first goods received by the business will be the first ones to be delivered to the final customer.

Gross Profit

Sales (1 * $300) $300

Less Cost of Sales (1 * $100) ($100)

Gross Profit $200

Inventory = Units left * earliest price

= 2 * $140

= $280

LIFO

LIFO method assumes that the last goods purchased are the first ones to be issued to the final customer.

Gross Profit

Sales (1 * $300) $300

Less Cost of Sales (1 * $140) ($140)

Gross Profit $160

Inventory : (1 * $100 + 1 * $120) = $220

Weighted Average Cost (AVCO)

The average cost of goods held is recalculated each time a new delivery of goods is received. Issues are then priced at this weighted average cost.

Gross Profit

Sales (1 * $300) $300

Less Cost of Sales (1 * $120) ($120)

Gross Profit $180

Inventory = Units left * average price

= 2 * $120

= $240