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1)What is the effect of increasing prices in the ending inventory under FIFO? How is the cost of goods sold affected by this? 2
1)What is the effect of increasing prices in the ending inventory under FIFO? How is the cost of
goods sold affected by this?
2.) What is the difference between the gross profit ‘based on sales’ vs gross profit ‘based on cost’?
Elaborate your answer.
Expert Solution
1) FIFO Moves from Oldest inventory, The inventory cost will higher because the latest purchases are at higher price
The cost of goods sold will lower and gross profit is higher because the sold goods are made from Oldest purchases
2) Gross profit 'based on sales'
Gross profit is in percentage of sales
Calculated by dividing Sales
Gross profit 'based on cost'
Gross profit is in percentage of cost
Calculating by dividing cost
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