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?

LIFO

Weighted-average

FIFO

	FIFO	LIFO	Weighted Average
Gross profit	$ 655	$ 751	$ 708

     LIFO results in higher profitability when inventory costs are declining.