HW2 Which is Better Ltd.

is trading with internal doors, the CEO asked the accountant to

show the difference between using FIFO and Average cost method.

During the first quarter of 20X1 Which is Better Ltd. has the following information on the
changes in inventories.

AVCO Date Transaction Quantity Purchase price Sales FIFO

(unit) ($/unit) price($/unit)
Opening inventory 40 150 6000
14h00 -

h0= January Purchase 60 140 8h00

noo

Sale 60 200 12000

5760 Closing inventory 40 1h0 5600

18240
February Purchase 80 156 12480
-50
so Sale 70 210 144-00
7600 Closing inventory 50 156 7800

March Purchase 50 146 7300

14900
D=
yoo
-

Sale 80 220 17600

2580 Closing inventory 20 1h6 2520

1. Calculate the gross profit and the amount of closing inventory at the end of each
month and at the end of the quarter if the company uses
a. FIFO
b. Average cost
method to calculate COGS.
2. Compare the results of a. and b. and explain the differences (in Income statement
and in Statement of Financial Position)

1.a) FIFO method

Month Revenue ($) COGS ($) Gross Profit ($) Value of closing
" =
inventory ($)
January 12000 8800 3200 5600
February 14700 10280 4h20 9-800
March 17600 12180 5h20 2520
Q1 Total 4h 300 31260 13040 2920

1.b) Average cost method

Month Revenue ($) COGS ($) Gross Profit ($) Value of closing
inventory ($)
January 12000 86h0 3360 5760
February 14700 10640 4060 7600
March 17600 11520 5680 2580
Q1 Total hh 300 37200 13100 2580
January
FIFO AVCO

6000 6000

8h00 8h00

12000 14h00 14h00

'

40
= 700
5600 5760