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A company just starting its business made the following four inventory purchases in June:
On June 25, the company made its first sale when a local customer purchased 500 units for $3,500.The company uses a perpetual inventory system.
-The inventory cost formula that results in the highest gross profit for June is
A)FIFO.
B)average.
C)Gross profit is the same under both cost formulas.
D)not determinable.

Question

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A company just starting its business made the following four inventory purchases in June:
  On June 25, the company made its first sale when a local customer purchased 500 units for $3,500.The company uses a perpetual inventory system.
-The inventory cost formula that results in the highest gross profit for June is
A)FIFO. 
B)average. 
C)Gross profit is the same under both cost formulas. 
D)not determinable.

Quizplus · Accepted Answer

FIFO (First In, First Out) typically results in the highest gross profit during periods of rising prices because the oldest (and usually cheaper) costs are matched against current revenues, leading to a higher gross profit.

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