## Saturday, 12 March 2016

### During 2015, Trombley Incorporated has the following inventory transactions.

Exercise 6-5 Calculate inventory amounts when costs are declining (LO3)
[The following information applies to the questions displayed below.]

 During 2015, Trombley Incorporated has the following inventory transactions.

 Date Transaction Number of Units Unit Cost Total Cost Jan. 1 Beginning inventory 18 \$ 20 \$ 360 Mar. 4 Purchase 23 19 437 Jun. 9 Purchase 28 18 504 Nov. 11 Purchase 28 16 448 97 \$ 1,749

For the entire year, the company sells 71 units of inventory for \$28 each.
 Required: 1. Using FIFO, calculate ending inventory, cost of goods sold, sales revenue, and gross profit.

Explanation:
1.
 Date Transaction Number of Units Unit Cost Ending Inventory Nov. 11 Purchase 26 \$ 16 \$ 416

 Date Transaction Number of Units Unit Cost Cost of Goods Sold Jan. 1 Beginning inventory 18 \$ 20 \$ 360 Mar. 4 Purchase 23 19 437 Jun. 9 Purchase 28 18 504 Nov. 11 Purchase 2 16 32 71* \$ 1,333

* First 71 units purchased are assumed sold

 Sales revenue = 71 units × \$28 = \$1,988

 Gross profit = Sales revenue − Cost of goods sold = \$1,988 − \$1,333 = \$655

2.
Using LIFO, calculate ending inventory, cost of goods sold, sales revenue, and gross profit.

Explanation:
2.
 Date Transaction Number of Units Unit Cost Ending Inventory Jan. 1 Beginning Inventory 18 \$ 20 \$ 360 Mar. 4 Purchase 8 19 152 26 \$ 512

 Date Transaction Number of Units Unit Cost Cost of Goods Sold Mar. 4 Purchase 15 \$ 19 \$ 285 Jun. 9 Purchase 28 18 504 Nov. 11 Purchase 28 16 448 71* \$ 1,237

* Last 71 units purchased are assumed sold

 Sales revenue = 71 units × \$28 = \$1,988

 Gross profit = Sales revenue – Cost of goods sold = \$1,988 − \$1,237 = \$751

Which method will result in higher profitability when inventory costs are declining?

 FIFO LIFO Weighted Average Gross profit \$ 655 \$ 751 \$ 708
LIFO results in higher profitability when inventory costs are declining.