The inventory method which results in the highest gross profit for June in periods of inflation is: A. not determinable. B. the LIFO method. C. the weighted average unit cost method. D. the FIFO method.
Question
The inventory method which results in the highest gross profit for June in periods of inflation is:
A. not determinable.
B. the LIFO method.
C. the weighted average unit cost method.
D. the FIFO method.
Solution
The answer is D. the FIFO method.
Here's the step-by-step explanation:
A. This option is incorrect because the inventory method that results in the highest gross profit during periods of inflation can be determined.
B. The LIFO (Last-In, First-Out) method assumes that the last goods purchased are the first ones to be sold. During periods of inflation, this method results in a higher cost of goods sold and a lower gross profit because the most recent, higher-cost items are sold first.
C. The weighted average unit cost method averages the cost of all the goods available for sale during the period. This method results in a gross profit that is between the gross profits calculated under the FIFO and LIFO methods.
D. The FIFO (First-In, First-Out) method assumes that the first goods purchased are the first ones to be sold. During periods of inflation, this method results in a lower cost of goods sold and a higher gross profit because the oldest, lower-cost items are sold first.
Therefore, the correct answer is D. the FIFO method.
Similar Questions
Which is the best descirbe of the effect of using different inventory method during of the period of rising price, a Using the Last-In, First-Out (LIFO) method will result in higher ending inventory and higher cost of goods sold, thereby showing higher gross profit compared to the First-In, First-Out (FIFO) method. b Using the First-In, First-Out (FIFO) method will result in lower ending inventory and higher cost of goods sold, thereby showing lower gross profit compared to the Last-In, First-Out (LIFO) method. c Using the First-In, First-Out (FIFO) method will result in higher ending inventory and lower cost of goods sold, thereby showing higher gross profit compared to the Last-In, First-Out (LIFO) method. d Using the Weighted Average Cost (WAC) method will always yield the same ending inventory and cost of goods sold figures irrespective of whether prices are rising or falling.
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