Suppose a Waldorf store in Atlanta, Georgia, ended November 2010 with 900,000 units of merchandise that cost

Question:

Suppose a Waldorf store in Atlanta, Georgia, ended November 2010 with 900,000 units of merchandise that cost an average of $5 each. Suppose the store then sold 800,000 units for $4.8 million during December. Further, assume the store made two large purchases during December as follows:
Dec 11 200,000 units @ $4.00 = $ 800,000
24 500,000 units @ $3.00 = $1,500,000

Requirements
1. At December 31, the store manager needs to know the stores gross profit under both FIFO and LIFO. Supply this information.
2. What caused the FIFO and LIFO gross profit figures to differ?
3. Assume that the store uses FIFO to value inventories, and that the store manager, whose bonus is based on profits, decides to change the unit cost on inventory to $5 for all units. What impact will this have on gross profit and net income? Does allow this?

GAAP
Generally Accepted Accounting Principles (GAAP) is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC). While the SEC previously stated that it intends to move from U.S. GAAP to the International Financial Reporting Standards (IFRS), the...