Use the data and results from Exercise 6-6A to compute gross profit for the month of January for the company similar to that in Exhibit 6.8 for the four inventory methods.

Required

1. Which method yields the highest gross profit?

2. Does gross profit using weighted average fall above, between, or below that using FIFO and LIFO?

3. If costs were rising instead of falling, which method would yield the highest gross profit?

Data From Exercise 6-6A

Navajo Company’s year-end financial statements show the following. The company recently discovered that in making physical counts of inventory, it had made the following errors: Year 1 ending inventory is understated by $56,000 and Year 2 ending inventory is overstated by $20,000.

Exhibit 6.8

Transcribed Image Text:

For Year Ended December 31 Year 1 Year 2 Year 3 (a) Cost of goods sold... (b) Net income ........ Total current assets ... (d) Total equity....... $ 615,000 $ 957,000 $ 780,000 230,000 285,000 241,000 (c) 1,255,000 1,365,000 1,200,000 1,387,000 1,530,000 1,242,000