Exercise 5-5 (Algo) Perpetual: Gross profit effects of inventory methods LO A1

1. Compute gross profit for the month of January for Laker Company for the four inventory methods. 2. Which method yields the highest gross profit? 3. Does gross profit using weighted average fall between that using FIFO and LIFO? 4. If costs were rising instead of falling, which method would yield the highest gross profit?

Required information Use the following information for the Exercises 3-7 below. (Algo) [The following information applies to the questions displayed below.] Laker Company reported the following January purchases and sales data for its only product. The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 200 units from the January 30 purchase, 5 units from the January 20 purchase, and 25 units from beginning inventory. Units sold at Retail Units Acquired at Cost 150 units @ $ 7.50 = $ 1,125 110 units @ $ 16.50 Date January 1 January 10 January 20 January 25 January 30 Activities Beginning inventory Sales Purchase Sales Purchase 80 units @ 6.50 = 520 90 units @ $ 16.50 200 units @ $ 6.00 = 1,200 $ 2,845 Totals 430 units 200 units LAKER COMPANY For Month Ended January 31 Specific Weighted Identification Average FIFO LIFO Sales Cost of goods sold Gross profit $ 0 $ $ 0