Assume that all three retailers sell a popular shirt that retails for $32. To compare the impact of inventory costing method, we will also assume that all three retailers have the following inventory and sales data for the same period. To keep the calculations simple, a unit represents one million shirts.

Beginning inventory: 3 units @ $10.00

Purchases: 2 units @ $15.00

Ending inventory: 1 unit

Questions

1. Calculate the number of units sold.

2. Calculate cost of goods sold, cost of ending inventory, and gross margin for Best Buy using the weighted-average inventory costing method.

3. Calculate cost of goods sold, cost of ending inventory, and gross margin for Amazon using the FIFO inventory costing method.

4. Calculate cost of goods sold, cost of ending inventory, and gross margin for Target using the LIFO inventory costing method.

5. If prices are decreasing, would FIFO or LIFO produce the highest income? Explain.

6. Would FIFO or LIFO produce the highest inventory cost on the balance sheet if prices are rising? Explain.