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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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