Question

Sunland Company just began business and made the following four inventory purchases in June: June 1 144 units $1000 June 10 192 units 1500 June 15 192 units 1610 June 28 144 units 1270 $5380 A physical count of merchandise inventory (rounded to whole dollar) on June 30 reveals that there are 200 units on hand. The inventory method which results in the highest gross profit for June is the average cost method. not determinable. the FIFO method. the LIFO method.

Answer 1

The First-in, First-out has the lower cost of goods sold, therefore, it will provide with a higher gross profit.

Step-by-step explanation:

Giving the following information:

June 1: 144 units for $1000 ($6.94 per unit)

June 10: 192 units for $1500 ($7.81 per unit)

June 15: 192 units for $1610 ($8.38 per unit)

June 28: 144 units for $1270 ($8.82 per unit)

Ending inventory in units= 200 units on hand.

The method that will provide a higher gross profit is the one with the lower cost of goods sold.

Inventory methods:

FIFO (first-in, first-out):

COGS= 144*6.94 + 192*7.81 + 136*8.38= $3,639

LIFO (last-in, lsdt-out)

COGS= 144*8.82 + 192*8.38 + 136*7.81= $3,941

Weighted-average:

Average price= (6.94 + 7.81 + 8.38 + 8.82)/4= $7.99

Now, we can calculate the cost of goods sold:

COGS= 7.99*472= $3,771.28

The First-in, First-out has the lower cost of goods sold, therefore, it will provide with a higher gross profit.