Question

Assume the perpetual inventory system is used unless stated otherwise. Accounting for inventory using the perpetual inventory system—FIFO, LIFO, and Weighted-average, and comparing FIFO, LIFO, and weighted-average Steel Mill began August with 50 units of iron inventory that cost S35 each. During August, the company completed the following inventory transactions:

Units Unit Cost Unit sale price

Aug. 3 Sale 45 $85
8 Purchase 90 $54
21 Sale 85 88
30 Purchase 15 58


Requirements
1. Prepare a perpetual inventory record for the merchandise inventory using the FIFO inventory costing method.
2. Prepare a perpetual inventory record for the merchandise inventory using the LIFO inventory costing method.
3. Prepare a perpetual inventory record for the merchandise inventory using the weighted-average inventory costing method.
4. Determine the company's cost of goods sold for August using FIFO, LIFO, and weighted-average inventory costing methods.
5. Compute gross profit for August using FIFO, LIFO, and weighted-average inventory costing methods.
6. If the business wanted to maximize gross profit, which method would it select?

Answer 1

1-3 Attached inventory record schedule based on FIFO, LIFO and WEIGHTED AVERAGE method

4. COST OF GOODS SOLD

FIFO $6,070

LIFO $6,165

WA $6,080

5. GROSS PROFIT

FIFO $5,235

LIFO $5,140

WA $5,225

6. FIFO method maximizes gross profit

Step-by-step explanation:

Schedule for Inventory record is attached based on FIFO, LIFO and Weighted Average method.

FIFO - (First in, First out) this inventory method sells older inventory before the company sells the newly acquired.

LIFO - (Last in, First out) this inventory method sells the latest acquired inventory rather than the older one.

Weighted Average- This inventory method uses inventory cost by dividing total amount of inventory over total units sold.

4. COST OF GOODS SOLD

FIFO

August 3 45 x $35 = $1,575

August 21 5 x $35 = $175

80 x $54 = 4,320

TOTAL $6,070

LIFO

August 3 45 x $35 = $1,575

August 21 85 x $54 = $4,590

TOTAL $6,165

Weighted Average

August 3 45 x $35 = $1,575

August 21 85 x $53 = 4,505

TOTAL $6,080

5. Gross Profit

Total sales is $11,305 (45 x $85 = $3,825 + 85 x $88 = 7,480)

FIFO

Total sales - Cost Of Goods Sold = Gross profit

$11,305 - $6,070 = $5,235

LIFO

Total sales - Cost Of Goods Sold = Gross profit

$11,305 - $6,165 = $5,140

Weighted Average

Total sales - Cost Of Goods Sold = Gross profit

$11,305 - $6,080 = $5,225

6. FIFO maximizes gross profit profit among the 3 methods. It yields the highest profit for the month of August in the amount of $5,235