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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

Use the following information for questions.
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 higher gross profit during periods of rising prices because the older, cheaper costs are matched against current revenues.

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