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ABC Company had 500 units of XYZ in its inventory at a cost of $4 each. It purchased, for $2,800, 300 more units of XYZ. ABC then sold 400 units at a selling price of $10 each, resulting in a gross profit of $1,600. The cost flow assumption used by ABC:__________

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Answer:

ABC company uses the average cost method

Explanation:

beginning inventory 500 units at $4 = $2,000

purchased 300 units at $9.33 = $2,800

sold 400 units at $10 = $4,000 ⇒ gross profit = $1,600

under LIFO, cost of goods sold = $2,800 + $400 = $3,200, gross profit = $800

under FIFO, cost of goods sold = $1,600, gross profit = $2,400

under average cost, cost of goods sold = ($4,800 / 800) x 400 = $2,400, gross profit = $1,600

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