E6-33B. (Learning Objective 3: Measuring gross profit—FIFO vs. LIFO; Falling prices)

Suppose a store in Milan ended September with 1,500,000 units of merchandise that cost an average of €9.00 each. Suppose the store then sold 1,300,000 units for €14.1 million during October. Further, assume the store made two large purchases during October as follows:

Requirements 1. At October 31, the store manager needs to know the store’s gross profit under both FIFO and LIFO. Supply this information.
2. What caused the FIFO and LIFO gross profit figures to differ?
3. Assume that the store uses FIFO, and that the store manager, whose bonus is based on profits, decides to value all units in ending inventory at €9 per unit. What impact will this action have on gross profit and net income? Should this be allowed?

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Oct 12 24 100,000 units @ $8.00 600,000 units @ $7.00 = = 800,000 4,200,000