Question

system. a. determine the costs assigned to ending inventory and to cost of goods sold using fifo. b. determine the costs assigned to ending inventory and to cost of goods sold using lifo. c. compute the gross profit for each meth

Answer 1

The question asks for calculations of ending inventory and COGS using FIFO and LIFO, as well as computation of gross profit for each method. FIFO usually results in lower COGS and higher inventory values, whereas LIFO results in higher COGS and lower inventory values when prices are rising.

Step-by-step explanation:

The student's question relates to the calculation of ending inventory and cost of goods sold (COGS) under two different inventory costing methods: First-In, First-Out (FIFO) and Last-In, First-Out (LIFO). Additionally, the student is tasked with computing the gross profit for each method.

1. FIFO: Under FIFO, the earliest (oldest) costs are assigned to COGS, while the most recent costs are assigned to ending inventory. This often results in a lower COGS and higher ending inventory value when prices are rising.
2. LIFO: Conversely, LIFO assigns the most recent costs to COGS, leading to a higher COGS and a lower ending inventory value under the same conditions.
3. To compute gross profit, subtract the COGS from sales revenue for both FIFO and LIFO.

Gross profit is a crucial metric as it indicates the efficiency of a company's core business activities without considering indirect costs.

Answer 2

To determine costs assigned to ending inventory and cost of goods sold using FIFO and LIFO, start with the oldest or most recent purchases and work towards the most recent or oldest ones respectively. Compute the gross profit by subtracting cost of goods sold from net sales.

Step-by-step explanation:

Step 1: Determine the system of interest, which in this case is the inventory costing method. The information given is the cost of goods available for sale and the quantity of goods sold. The quantity to be calculated is the costs assigned to ending inventory and to cost of goods sold.

a. FIFO (First-In, First-Out): In this method, the costs assigned to ending inventory are based on the costs of the most recent purchases, while the costs assigned to cost of goods sold are based on the costs of the oldest purchases. To calculate these costs, start with the earliest purchases and work towards the most recent ones.

b. LIFO (Last-In, First-Out): In this method, the costs assigned to ending inventory are based on the costs of the oldest purchases, while the costs assigned to cost of goods sold are based on the costs of the most recent purchases. To calculate these costs, start with the most recent purchases and work towards the oldest ones.

c. To compute the gross profit for each method, subtract the cost of goods sold from the net sales.