Similar to the example of FIFO and LIFO inventory accounting methods in the text, a college store purchased sweatshirts for the upcoming fall semester. Using the following data, where a total of 100 sweatshirts were purchased by the store and placed in inventory, select the correct statement from the following choices.
A) FIFO would provide the least profit.
B) FIFO would provide the most profit.
C) LIFO or FIFO will produce the same amount of profit.
D) LIFO would provide the most profit.

Question

Similar to the example of FIFO and LIFO inventory accounting methods in the text, a college store purchased sweatshirts for the upcoming fall semester. Using the following data, where a total of 100 sweatshirts were purchased by the store and placed in inventory, select the correct statement from the following choices.   
A) FIFO would provide the least profit. 
B) FIFO would provide the most profit. 
C) LIFO or FIFO will produce the same amount of profit. 
D) LIFO would provide the most profit.

Quizplus · Accepted Answer

If the business sells the first 50 sweatshirts that it received on August 1, the cost of goods sold = $600 [50 sweatshirts x $12/each = $600]. If the business sells the last 50 sweatshirts that it received on September 1, the cost of goods sold = $700 [50 sweatshirts x $14/each = $700]. FIFO, or first-in, first-out (meaning the first sweatshirts that come into inventory are the first to sell), will provide the most profit because they cost $100 less than the sweatshirts that were purchased on September 1.
Profit from first 50 sweatshirts:  $1400 - $600 = $800 profit
Profit from last 50 sweatshirts:   $1400 - $700 = $700 profit

Similar to the Example of FIFO and LIFO Inventory Accounting