# FIFO LIFO Gross Profit

Units            Unit Price

Beginning Inventory     709             \$2.00

Purchases                    556             \$6.00

Sales                            959             \$13.00

What is gross profit using the FIFO method and LIFO method?

Explanation

FIFO COGS = (709 units)(\$2/unit) + (959 − 709)(\$6/unit) = \$1,418 + \$1,500 = \$2,918

Sales = (959 units)(\$13/unit) = \$12,467

Gross profit = Sales − COGS

= 12,467 − 2,918 = \$9,549

LIFO COGS = (556 units)(\$6/unit) + (959 − 556)(\$2/unit) = \$3,336 + \$806 = \$4,142

Sales = (959 units)(\$13/unit) = \$12,467

Gross profit = Sales − COGS

= 12,467 − 4,142 = \$8,325

My question:  Where did they get “(959 − 709)(\$6/unit)” for FIFO COGS?  And “(959 − 556)(\$2/unit)” for LIFO COGS?  (specifically the price per unit part.  Shouldn’t it be \$2 and \$6 for FIFO and LIFO?)

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FIFO: 709 units sold from beginning inventory (all of BE), 250 (= 959 − 709) units sold from purchases.

LIFO: 556 units sold from purchases (all of purchases),403 (= 959 − 556) units sold from beginning inventory.

Simplify the complicated side; don't complify the simplicated side.

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