Periodic System— Computing Cost of Sales and Gross Profit under FIFO and LIFO The owner of Valley Cycle wants to maximize after-tax cash flows and is considering switching from FIFO. The following data are available for its first quarter of 2020. In addition, sales for the first quarter totaled 374 units, and a physical inventory taken on March 31, 2020, showed 170 units available in inventory. Valley uses the periodic inventory method. Date Units Unit Cost January 1, 2020 (beginning inventory) 102 $180 Purchases: January 15, 2020 136 205 February 12, 2020 170 215 March 19, 2020 136 230
Periodic System— Computing Cost of Sales and Gross Profit under FIFO and LIFO
The owner of Valley Cycle wants to maximize after-tax
| Date | Units | Unit Cost | |
|---|---|---|---|
| January 1, 2020 (beginning inventory) | 102 | $180 | |
| Purchases: | January 15, 2020 | 136 | 205 |
| February 12, 2020 | 170 | 215 | |
| March 19, 2020 | 136 | 230 |
Required
a. Which of the following inventory flow methods would we recommend that Valley use to produce the greatest after-tax cash flows: FIFO or LIFO?
AnswerLIFOFIFOCollect more data to verify trends
b. Prepare a table showing the gross profit and gross profit percentage for each method in part a assuming all units for the quarter were sold for $300 each.
Note: Do not use any negative signs with your answers.
Note: Round gross profit percentage to two decimal places (for example, enter 24.34 for 24.335555%)
| FIFO | LIFO | |
|---|---|---|
| Sales | Answer
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Answer
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| Less: Cost of goods sold | Answer
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Answer
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| Gross profit | Answer
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Answer
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| Gross profit percentage | Answer
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Answer
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