Three identical units of Item Alpha are purchased during February, as shown below.

Three identical units of Item Alpha are purchased during February, as shown below.


Item Alpha Units Cost
Feb. 9 Purchase 1 $ 40
17 Purchase 1 42
26 Purchase 1 44
Total 3 $126
Average cost per unit $ 42 ($126 ÷ 3 units)

Assume that one unit is sold on February 28 for $75. Determine the gross profit for February and ending inventory on February 28 using the (a) first-in, first-out (FIFO); (b) last-in, first-out (LIFO); and (c) weighted average cost methods.


Answer:

a. First-in, first-out (FIFO)
b. Last-in, first-out (LIFO)
c. Weighted average cost
Gross Profit
February
$35 ($75 – $40)
$31 ($75 – $44)
$33 ($75 – $42)
Ending Inventory
February 28
$86 ($42 + $44)
$82 ($40 + $42)
$84 ($42 × 2)