To determine which inventory method results in the highest gross profit for June, we need to calculate the gross profit using the FIFO (First-In, First-Out) method, which was initially indicated.
1. Summarize the Purchases:
- June 1: 190 units at \[tex]$380
- June 10: 200 units at \$[/tex]580
- June 15: 200 units at \[tex]$650
- June 28: 130 units at \$[/tex]500
- Total units purchased = 720 units
- Total cost of units purchased = \[tex]$2110
2. Determine Units Sold:
- Physical count of inventory on June 30: 290 units on hand.
- Total units purchased = 720 units.
- Units sold = Total units purchased - Units on hand
- Units sold = 720 - 290 = 430 units
3. Calculate the FIFO Cost of Goods Sold (COGS):
- Using FIFO, the cost of goods sold is calculated based on the earliest costs incurred:
- Sell the 190 units from June 1: 190 units * (\$[/tex]380 / 190) = \[tex]$380 (entire batch)
- Sell the 200 units from June 10: 200 units * (\$[/tex]580 / 200) = \[tex]$580 (entire batch)
- Sell 40 units from June 15: 40 units * (\$[/tex]650 / 200) = \[tex]$130 (since there are only 40 units left to meet the 430 units sold requirement)
- COGS for 430 units sold using FIFO method = \$[/tex]380 + \[tex]$580 + \$[/tex]130 = \[tex]$1090
4. Calculate Gross Profit:
- Gross profit = Total cost of units purchased - COGS
- Gross profit = \$[/tex]2110 - \[tex]$1090 = \$[/tex]1020
Based on these calculations, the FIFO method results in a gross profit of \$1020 for June.
Hence, the inventory method which results in the highest gross profit for June is the FIFO method.
