Echo Sound Company just began business and made the following four inventory purchases in June: $\begin{array}{lrlr}
\text { June } & 1 & 150 \text { units } & \$ 1,040 \
\text { June } & 10 & 200 \text { units } &1,560 \
\text { June } & 15 & 200 \text { units } & 1,680\
\text { June } & 28 & 150 \text { units } & 1,320 \
& &&\$5,600
\end{array}$ A physical count of merchandise inventory on June 30 reveals that there are 210 units on hand. The inventory method which results in the highest gross profit for June is
A)the FIFO method.
B)the LIFO method.
C)the average cost method.
D)not determinable.

Question

Echo Sound Company just began business and made the following four inventory purchases in June: $\begin{array}{lrlr}
\text { June } & 1 & 150 \text { units } & \$ 1,040 \
\text { June } & 10 & 200 \text { units } &1,560  \
\text { June } & 15 & 200 \text { units } & 1,680\
\text { June } & 28 & 150 \text { units } &  1,320 \
& &&\$5,600
\end{array}$ A physical count of merchandise inventory on June 30 reveals that there are 210 units on hand. The inventory method which results in the highest gross profit for June is
A)the FIFO method.
B)the LIFO method.
C)the average cost method.
D)not determinable.

Quizplus · Accepted Answer

The FIFO method results in the highest gross profit because it assumes the oldest costs are matched against current revenues, leaving the most recent costs in ending inventory. Since prices are rising, the older, cheaper costs are used for cost of goods sold, resulting in a higher gross profit.

Echo Sound Company Just Began Business and Made the Following