PE 7-1B Cost flow methods

Three identical units of Item ZE9 are purchased during April, as shown below.

Item WH4        Units       Cost
Apr. 2 Purchase 1 $10
     12 Purchase 1              12
     23 Purchase 1              14
     Total 3 $36
     Average cost per unit $12 ($36 ÷ 3 units)

Assume that one unit is sold on April 27 for $29.
Determine the gross profit for April and ending inventory on April 30 using the (a) first-in, first-out (FIFO); (b) last-in, first-out (LIFO); and (c) average cost methods.

Answer:
                                          Gross Profit   Ending Inventory  
                                             April     April 30
a. First-in, first-out (FIFO) $19 ($29 – $10) $26 ($12 + $14)
b. Last-in, first-out (LIFO) $15 ($29 – $14) $22 ($10 + $12)
c. Average cost                   $17 ($29 – $12) $24 ($12 × 2)

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