Question

Montoure Company uses a perpetual inventory system. It entered into the following calendar-year purchases and sales transactions. (For specific identification, units sold consist of 600 units from beginning inventory, 300 from the February 10 purchase, 200 from the March 13 purchase, 50 from the August 21 purchase, and 250 from the September 5 purchase.)

Date	Activities	Units acquired at cost	Units sold at retail
Jan 1	Beginning inventory	600 units @ \(45.00 per unit
Feb 10	Purchases	400 units @ \)42.00 per unit
March 13	Purchases	200 units @ \(27.00 per unit
March 15	Sales		800 units @ \)75.00 per unit
Aug 21	Purchases	100 units @ \(50.00 per unit
Sep 5	Purchases	500 units @ \)46.00 per unit
Sep 10	Sales		600 units @ $75.00 per unit
	Total	1,800 units	1,400 units

Required

Compute gross profit earned by the company for each of the four costing methods in part 3.

Short answer

Method	Gross profit
FIFO	$46,200
LIFO	$45,800
Weighted Average	$45,560
Specific Identification	$46,000

Step-by-step solution

Definition of Income Statement

Income Statement can be defined as the schedule reporting the net benefits generated by the business entity. Such benefits are calculated using the revenue and expenses of the business entity.

Calculation of Gross Profit

Cost of goods available for sale

Particular	Units	X	Per unit cost	=	Total cost
Jan 1	600	X	$45	=	$27,000
Feb 10	400	X	$42	=	$16,800
March 13	200	X	$27	=	$5,400
Aug 21	100	X	$50	=	$5,000
Sep 5	500	X	$46	=	$23,000
Total	1,800				$77,200

Cost of goods sold:

Particular	FIFO	LIFO	Weighted Average	Specific Identification
Cost of goods available for sale	$77,200	$77,200	$77,200	$77,200
Less: Ending Inventory	(18,400)	(18,000)	(17,760)	(18,200)
Cost of goods sold	$58,800	$59,200	$59,440	$59,000

Gross Profit:

Particular	FIFO	LIFO	Weighted Average	Specific Identification
Sales$\left(1,400\times \$75\right)$	$105,000	$105,000	$105,000	$105,000
Less: Cost of goods sold	(58,800)	(59,200)	(59,440)	(59,000)
Gross Profit	$46,200	$45,800	$45,560	$46,000