Problem
The following comparative information is provided for ghost train company, which uses a perpetual inventory system. the company controller is considering the impact of its choice to use the FIFO method, as compared to the Weighted average method. Historically ghost train company has been experiencing decreasing costs to purchase inventory
|
|
FIFO
|
Weighted Average
|
|
Cost of goods sold
|
$12,000
|
$11,500
|
|
Ending inventory
|
$1,000
|
$1,500
|
|
Gross profit
|
$18,000
|
$18,500
|
I. Explain why gross profit is not the same under the two cost formulas
II. Regardless of the results of the analysis above, what factors should a company consider when choosing between inventory cost methods?