Q34PGB_5 - Horngren'S Financial And Managerial Accounting

Question

Steel It began January with 55 units of iron inventory that cost \(35 each. During January, the company completed the following inventory transactions:

Units Unit Cost Unit Sales Price

Jan. 3 Sale 45 \) 83

8 Purchase 75 $ 52

21 Sale 70 85

30 Purchase 10 55

 

Requirements

5. Compute gross profit for January using FIFO, LIFO, and weighted-average inventorycosting methods.

Step-by-Step Solution

Answer

Gross profit under FIFO, LIFO, and Average cost is $4,640, $4,470, $4,610, respectively. 

Step1: Computation of total revenue

$$\begin{gathered} \text{TotalRevenue=SalevalueofJan3+SalevalueofJan21} \\ \text{=}\left(45\times \$83\right)+\left(70\times \$85\right) \\ =\$3,735+\$5,950 \\ =\$9,685 \end{gathered}$$

Step 2: Gross profit under FIFO

$$\begin{gathered} \text{GrossProfit=TotalRevenue-COGSunderFIFO} \\ \text{=\$9,685-\$5,045} \\ \text{=\$4,640} \end{gathered}$$

Step 3: Gross profit under LIFO

$$\begin{gathered} \text{GrossProfit=TotalRevenue-COGSunderLIFO} \\ \text{=\$9,685-\$5,215} \\ \text{=\$4,470} \end{gathered}$$

Step 4: Gross profit under the weighted average method

$$\begin{gathered} \text{GrossProfit=TotalRevenue-COGSunderweightedaverage} \\ \text{=\$9,685-\$5,075} \\ \text{=\$4,610} \end{gathered}$$