How do I calculate the answers, I am at a complete loss of how to determine

Question

Cost Flow Methods

Three identical units of Item PX2T are purchased during July, as shown below.

Item PX2T Units Cost
July 9	Purchase		1		$208
July 17	Purchase		1		209
July 26	Purchase		1		210
Total			3		$627
Average cost per unit					$209	($627 ÷ 3 units)

Assume that one unit is sold on July 31 for $270. Determine the gross profit for July and ending inventory on July 31 using the (a) first-in, first-out (FIFO); (b) last-in, first-out (LIFO); and (c) weighted average cost methods.

Gross ProfitEnding Inventory
a. First-in, first-out (FIFO)	$	$
b. Last-in, first-out (LIFO)	$	$
c. Weighted average cost	$	$

Answer 1

Gross Profit = Net Sales – Cost of Goods Sold (COGS)

When you sell inventory, you debit COGS (increasing the COGS balance) and credit your Inventory account (decreasing the Inventory balance).

The problem states Net Sales is $270, so you have to figure out the COGS to solve for Gross Profit and Ending Inventory.

Using different Cost Flow Methods may (and usually does) result in a different COGS number.

FIFO:

First in First Out means that the unit first purchased (July 9) is the first unit sold (on July 31). When a unit is sold, you Debit COGS. So, the sale of inventory on July 31 results in $208 in COGS. Gross Profit is calculated as Net Sales of $270 – COGS of $208. The ending FIFO inventory balance is anything left in inventory that’s not been sold, so it would be the total of the July 17 and July 26 purchase.

LIFO:

Last in First Out means that the unit last purchased (July 26) is the first unit sold (on July 31). When a unit is sold, you Debit COGS. So, the sale of inventory on July 31 results in $210 in COGS. Gross Profit is calculated as Net Sales of $270 – COGS of $210. The ending LIFO inventory balance is anything left in inventory that’s not been sold, so it would be the total of the July 9 and July 17 purchase.

Weighted Average Cost:

For weighted average, you divide the total inventory balance in dollars by the total number of units in inventory. The problem gives this info to you and states it as the Average cost per unit of $209. When a unit is sold, you Debit COGS. So, the sale of inventory on July 31 results in $209 in COGS. Gross Profit is calculated as Net Sales of $270 – COGS of $209. The ending weighted average cost inventory balance is anything left in inventory that’s not been sold, so it would be 2 units at $209/unit.

Let me know if you have any questions or would like to schedule a tutoring session.

Thanks,

Scott