Question

Blake Company purchased two identical inventory items. The item purchased first cost $34.00, and the item purchased second cost $35.00. Blake sold one of the items for $64.00. Which of the following statements is true?

A. The dollar amount assigned to ending inventory will be the same no matter which cost flow method is used.
B. Gross margin will be higher if Blake uses LIFO than it would be if FIFO were used.
C. Ending inventory will be lower if Blake uses weighted average than if FIFO were used.
D. Cost of goods sold will be higher if Blake uses FIFO than if weighted average were used.

Answer 1

c

Step-by-step explanation:

LIFO means last in first out. It means that it is the last purchased inventory that is the first to be sold.

FIFO means first in, first out. It means that it is the first purchased inventory that is the first to be sold

Weighted average is the average cost of the inventories bought over a period

If FIFO is used, ending inventory would be $35.

If weighted average is used , ending inventory = (34 +35) / 2 = $34.50

Thus, ending inventory will be lower if Blake uses weighted average than if FIFO were used

Gross margin = gross profit / revenue

If FIFO was used . gross margin = (64 - 34) / 64 = 0.469

If LIFO was used . gross margin = (64 - 35) / 64 = 0.453

Gross margin will be lower if Blake uses LIFO than it would be if FIFO were used.