During 2015, TRC Corporation has the following inventory transactions. For the e
ID: 2477502 • Letter: D
Question
During 2015, TRC Corporation has the following inventory transactions.
For the entire year, the company sells 411 units of inventory for $52 each.
4) Determine which method will result in higher profitability when inventory costs are rising:
a) Weighted-average b) LIFO c) FIFO
Thank you :)
During 2015, TRC Corporation has the following inventory transactions.
For the entire year, the company sells 411 units of inventory for $52 each.
4) Determine which method will result in higher profitability when inventory costs are rising:
a) Weighted-average b) LIFO c) FIFO
Thank you :)
Explanation / Answer
Solution:
1)
FIFO Method
In FIFO method Material received first is to be issued first & Ending Inventory is valued at the recent purchase price
Calculation of ending inventory, cost of goods sold, sales revenue and gross profit
FIFO
Cost of Goods Available for sale
Cost of Goods Sold
Ending Inventory
Units
$/Unit
$$
Units
$/Unit
$$
Units
$/Unit
$$
Beginning Inventory
42
$34
$1,428
42
$34
$1,428
0
Purchases:
Apr. 7
122
$36
$4,392
122
$36
$4,392
0
Jul. 16
192
$39
$7,488
192
$39
$7,488
0
Oct. 6
102
$40
$4,080
55
$40
$2,200
47
$40
$1,880
Total
458
$17,388
411
$15,508
47
$1,880
Sales Revenue
(411 Units x $52)
$21,372
Gross Profit
(Sales - Cost of Goods Sold)
$5,864
2)
LIFO Method
In LIFO method material purchased last is to be issued first & Ending Inventory is valued at the oldest purchase price.
Calculation of ending inventory, cost of goods sold, sales revenue and gross profit
LIFO
Cost of Goods Available for sale
Cost of Goods Sold
Ending Inventory
Units
$/Unit
$$
Units
$/Unit
$$
Units
$/Unit
$$
Beginning Inventory
42
$34
$1,428
42
$34
$1,428
Purchases:
Apr. 7
122
$36
$4,392
117
$36
$4,212
5
$36
$180
Jul. 16
192
$39
$7,488
192
$39
$7,488
Oct. 6
102
$40
$4,080
102
$40
$4,080
Total
458
$17,388
411
$15,780
47
$1,608
Sales Revenue
(411 Units x $52)
$21,372
Gross Profit
(Sales - Cost of Goods Sold)
$5,592
3)
Average Method
Under this method, an average cost per unit is calculated at each point of time after a purchase
Average Cost Per Unit = Total Cost of Material In inventory / Total Quantity of Material
Calculation of ending inventory, cost of goods sold, sales revenue and gross profit
Weighted Average Cost
Cost of Goods Available for sale
Cost of Goods Sold
Ending Inventory
Units
$/Unit
$$
Units
$/Unit
$$
Units
$/Unit
$$
Beginning Inventory
42
$34
$1,428
Purchases:
Apr. 7
122
$36
$4,392
Jul. 16
192
$39
$7,488
Oct. 6
102
$40
$4,080
Total
458
$17,388
411
$38
$15,604
47
$38
$1,784
Sales Revenue
(411 Units x $52)
$21,372
Gross Profit
(Sales - Cost of Goods Sold)
$5,768
4)
FIFO method will result in higher profitability when inventory costs are rising because under FIFO stocks are valued at latest prices..
Calculation of ending inventory, cost of goods sold, sales revenue and gross profit
FIFO
Cost of Goods Available for sale
Cost of Goods Sold
Ending Inventory
Units
$/Unit
$$
Units
$/Unit
$$
Units
$/Unit
$$
Beginning Inventory
42
$34
$1,428
42
$34
$1,428
0
Purchases:
Apr. 7
122
$36
$4,392
122
$36
$4,392
0
Jul. 16
192
$39
$7,488
192
$39
$7,488
0
Oct. 6
102
$40
$4,080
55
$40
$2,200
47
$40
$1,880
Total
458
$17,388
411
$15,508
47
$1,880
Sales Revenue
(411 Units x $52)
$21,372
Gross Profit
(Sales - Cost of Goods Sold)
$5,864
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