To illustrate the different inventory cost flow assumptions, consider the follow

Question

To illustrate the different inventory cost flow assumptions, consider the following example of Russell Company, which purchased inventory at three different times at three different prices.

Russell purchased a total of 60 units, which cost a total of $920. On May 31st a customer purchased 20 units. Russell’s selling price was $25 per unit.

Under the FIFO method, what is the unit cost of the items sold?

Under the LIFO method, what is the unit cost of the 40 items in ending inventory?

Fill in the table below, calculate Russell Company’s sales revenue, cost of goods sold, gross profit and ending inventory balance under each of the three inventory cost flow assumptions. Round your answer to the nearest dollar. However, do not round intermediate calculations.

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Units Cost per Unit Total Cost May 1 Purchase 20 $ 9 $ 180 May 15 Purchase 20 17 340 May 20 Purchase 20 20 400 Goods available for sale 60 $ 920

Explanation / Answer

FIFO LIFO Average Cost $ $ $ Revenue 500 500 500 Cost of goods sold 180 400 307 Gross profit 320 100 193 Ending inventory 740 520 613

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