Assume that two units are sold on May 23 for $313 total. Determine the gross profit for May and ending inventory on May 31 using (a) FIFO, (b) LIFO, and (c) weighted average cost methods.

(a) Gross profit for May = $360; and Ending inventory on May 31 = $142

(b) Gross profit for May = $348; and Ending inventory on May 31 = $130

(c) Gross profit for May = $354; and Ending inventory on May 31 = $136

Explanation:

Note: This question is not complete. The complete question is therefore provided before answering the question as follows:

Three identical units of merchandise were purchased during May, as follows:

Date        Magnesium XP      Units           Cost

May 3         Purchase                1              $130

      10         Purchase                1                136

      19         Purchase                1                142

Total                                          3             $408

Assume that two units are sold on May 23 for $313 total. Determine the gross profit for May and ending inventory on May 31 using (a) FIFO, (b) LIFO, and (c) average cost methods. The perpetual inventory method is used.

The explanation to the answer is now given as follows:

(a) Determine the gross profit for May and ending inventory on May 31 using FIFO.

First In First Out (FIFO) refers to the inventory method under which the inventory purchased first is sold first.

Based on the above, we have:

Cost of goods sold = Cost of May 3 Purchases + Cost of May 10 Purchases = (1 * $130) + (1 * $136) = $130 + $136 = $266

Sales revenue = Units sold * Price per unit = 2 * $313 = $626

Gross profit for May = Sales revenue - Cost of goods sold = $626 - $266 = $360

Ending inventory on May 31 = Cost of May 19 Purchases = 1 * $142 = $142

(b) Determine the gross profit for May and ending inventory on May 31 using LIFO.

Last In First Out (FIFO) refers to the inventory method under which the inventory purchased last is sold first.

Based on the above, we have:

Cost of goods sold = Cost of May 19 Purchases + Cost of May 10 Purchases = (1 * $142) + (1 * $136) = $142 + $136 = $278

Sales revenue = Units sold * Price per unit = 2 * $313 = $626

Gross profit for May = Sales revenue - Cost of goods sold = $626 - $278 = $348

Ending inventory on May 31 = Cost of May 3 Purchases = 1 * $130 = $130

(c) Determine the gross profit for May and ending inventory on May 31 using average cost method.

Average cost method can be described as an inventory costing technique under which the average cost per unit is obtained by dividing the total cost of the goods available for sale by the total number of units available for sales.

Based on the above, we have:

Average cost per unit = $408 / 3 = $136

Cost of goods sold =  Average cost per unit * Units sold = $136 * 2 = $272

Sales revenue = Units sold * Price per unit = 2 * $313 = $626

Gross profit for May = Sales revenue - Cost of goods sold = $626 - $272 = $354

Ending inventory on May 31 = Average cost per unit * Units remaining unsold = $136 * 1 = $136

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