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The Breeze trading company discloses the following information for the month of August 2016.

Aug. 01: Beginning inventory, 600 units @ $5 each each.
Aug. 10: Sold 400 units @ $12 each.
Aug. 11: Purchased 1,600 units @ $6 each.
Aug. 15: Sold 1,000 units @ $12.50 each.
Aug. 20: Purchased 1,000 units @ $6.50 each.
Aug. 27: Sold 600 units @ $13.50 each.
Required:

Assume the Breeze trading company uses periodic inventory system, compute cost of goods sold (COGS), ending inventory and gross profit under:
(a). FIFO
(b). LIFO
Assume the Breeze company uses perpetual inventory system, compute cost of goods sold (COGS), ending inventory and gross profit under:
(a). FIFO
(b). LIFO
Explain the reason of higher gross profit under FIFO than LIFO?

Respuesta :

Answer:

Periodic system: FIFO ; COGS= $11400, closing inventory = $7700, gross profit=$14000. LIFO = closing stock= 6600, COGS=$12500, gross profit=12900.

perpetual system: FIFO ;COGS=11400, closing stock= $7700, gross profit= $11400. LIFO ; COGS=$12500, closing stock= $6600, gross profit = $12900

Reason for a higher gross profit in FIFO than LIFO is some of the stock ends up not being sold as they are maybe old, out-fashioned, and obviously new trend come about everyday.

Explanation:

PERIODIC    

DR  purchases account    CR

11-Aug bank 9600  inventory 16100

20-Aug bank 6500    

     

                16100                   16100

 FIFA cost of sales  

   

opening balance   3000

purchases     16100

closing             7700

cost of sales     11400

gross profit   14000

sales           25400

cost of sales   11400

closing inventory           7700

200 units from 11 aug   1200

1000 units from 20 aug   6500

LIFO  

closing balance         6600

600 units from 01 aug   3000

600 units from 11 aug   3600

Cost of sales  

opening stock  3000

purchases   16100

closing stock   6600

cost of sales   12500

   

gross profit   12900

sales         25400

cost of sales   12500

perpetual inventory system    

  FIFA

cost of sales   11400

10-Aug   2000

15-Aug   5800

27-Aug   3600

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