Question

Question 3: Assume that Toys Galore store bought and sold a line of dolls during December as follows: Dec. 1 Beginning merchandise inventory 13 units - $ 9 each 8 Sale 8 units - $ 22 each 14 Purchase 16 units - $ 14 each 21 Sale 14 units - $ 22 each Requirements 1. Compute the cost of goods sold, cost of ending merchandise inventory, and gross profit using the FIFO inventory costing method. 2. Compute the cost of goods sold, cost of ending merchandise inventory, and gross profit using the LIFO inventory costing method. 3. Which method results in a higher cost of goods sold? 4. Which method results in a higher cost of ending merchandise inventory? 5. Which method results in a higher gross profit?

Answer 1

Using FIFO, the COGS is $156, the ending inventory is $143, and the gross profit is $328. Using LIFO, the COGS is $232, the ending inventory is $81, and the gross profit is $252. FIFO results in a higher ending inventory and gross profit, while LIFO results in a higher COGS.

Step-by-step explanation:

To answer your questions regarding the Toys Galore store's inventory using FIFO and LIFO methods:

1. FIFO (First-In, First-Out) results in:

• Cost of Goods Sold (COGS): (8 units × $9) + (6 units × $14) = $72 + $84 = $156
• Ending Inventory: (7 units × $14) + (5 units × $9) = $98 + $45 = $143
• Gross Profit: (22 units sold × $22) - COGS = $484 - $156 = $328

LIFO (Last-In, First-Out) results in:

• Cost of Goods Sold (COGS): (14 units × $14) + (4 units × $9) = $196 + $36 = $232
• Ending Inventory: (9 units × $9) = $81
• Gross Profit: (22 units sold × $22) - COGS = $484 - $232 = $252

The method resulting in a higher COGS is LIFO.The method resulting in a higher ending inventory is FIFO.The method resulting in a higher gross profit is FIFO.