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Accounting questions?
Accounting questions?
in a period of rising prices, the inventory reported in Alpha Company's balance sheet is close to the current cost of the inventory whereas Omega Company's inventory is considerably below its current cost. identity the inventory cost flow method used by each company. which company probably has been reporting the higher gross profit?
Answers:
just_the_facts_ma'am: Alpha is using FIFO and Omega is using LIFO. Alpha has likely been reporting higher GP
2007-10-08 17:38:51
2007-10-08 17:38:51
Chosen Answer
dee y: Alpha is doing FIFO or first-in, first-out method which means the stocks/inventory left were those purchased recently and the old stocks are the ones sold. Omega on the otherhand uses LIFO(last-in, first-out). Their old stocks with prices relatively low than the current prices were the ones retained in their inventory while their recent purchases were the ones sold.
Gross Profit = Sales - Cost of Goods Sold
Sales maybe in the same Sales Price.
It will defer on the Cost of the Goods Sold.
In this case,
Alpha, will have a higher gross profit than Omega since the Cost of the Goods (old stocks) that they Sold were those purchased when prices are low.
The other way around happened with Omega. The Cost of Goods that were Sold were higher because those were the goods that were purchased currently where prices are rising.
2007-10-09 04:44:42
dee y: Alpha is doing FIFO or first-in, first-out method which means the stocks/inventory left were those purchased recently and the old stocks are the ones sold. Omega on the otherhand uses LIFO(last-in, first-out). Their old stocks with prices relatively low than the current prices were the ones retained in their inventory while their recent purchases were the ones sold.
Gross Profit = Sales - Cost of Goods Sold
Sales maybe in the same Sales Price.
It will defer on the Cost of the Goods Sold.
In this case,
Alpha, will have a higher gross profit than Omega since the Cost of the Goods (old stocks) that they Sold were those purchased when prices are low.
The other way around happened with Omega. The Cost of Goods that were Sold were higher because those were the goods that were purchased currently where prices are rising.
2007-10-09 04:44:42