requirement 4. which method results in the largest gross profit, and why? the method results in the largest…

requirement 4. which method results in the largest gross profit, and why? the method results in the largest gross profit because during times of inventory prices, this method will produce the cost of goods sold. etext pages calculator transactions may 1, beginning merchandise inventory 24 tires @ $61 each may 11, purchase 6 tires @ $78 each may 23, sale 16 tires @ $83 each may 26, purchase 14 tires @ $86 each may 29, sale 17 tires @ $83 each

requirement 4. which method results in the largest gross profit, and why? the method results in the largest gross profit because during times of inventory prices, this method will produce the cost of goods sold. etext pages calculator transactions may 1, beginning merchandise inventory 24 tires @ $61 each may 11, purchase 6 tires @ $78 each may 23, sale 16 tires @ $83 each may 26, purchase 14 tires @ $86 each may 29, sale 17 tires @ $83 each

Answer

Explanation:

Step1: Recall inventory - costing methods

The main inventory - costing methods are FIFO (First - In, First - Out), LIFO (Last - In, First - Out), and weighted - average.

Step2: Analyze FIFO in rising prices

In times of rising inventory prices, FIFO assumes that the earliest (and usually lower - cost) items are sold first. So, the cost of goods sold is lower.

Step3: Calculate gross profit formula

Gross profit = Sales revenue - Cost of goods sold. A lower cost of goods sold results in a higher gross profit.

Step4: Determine the answer

Since in rising prices, FIFO has the lowest cost of goods sold among the common methods, it results in the largest gross profit.

Answer:

The FIFO method results in the largest gross profit because during times of rising inventory prices, this method will produce the lowest cost of goods sold.