A company just starting business made the following purchases in August: August 1 300 units $1,560 August 12 400 units 2,340 August 24 400 units 2,520 August 30 300 units 1,980 1,400 units $8,400 A physical count of the inventory on August 31 reveals that there are 500 units on hand. What inventory method produces the lowest gross profit for August

Solution and Explanation:

 Purchased    

DateDescription        UnitsValuePer unit cost  

1st augustPurchase300       1560          5.20  

12th augustPurchase400       2340                 5.85  

24th augustPurchase400      2520                6.30  

30th augustPurchase300       1980                6.60  

                      Total      14008400        

The Closing quantity = 500

The number of Units that have been sold = 900

Value of inventory as per First in first out ( FIFO) method is calculated as follows

= 3240

Therefore, the answer is $3240.

LIFO inventory method produces the lowest gross profit for August.

Explanation:

Applying the FIFO inventory method, the total value of the company's closing inventory as on August 31 stands at $3,240.

Applying the LIFO inventory method, the cost of goods sold stands at $5,670 (for August month).

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