Asked by Belgica M Richiez on Jul 30, 2024
Verified
At May 1 2016 Bibby Company had beginning inventory consisting of 200 units with a unit cost of $7. During May the company purchased inventory as follows: 800 units at $7
500 units at $9
The company sold 500 units during the month for $12 per unit. Bibby uses the average cost method. Bibby's gross profit for the month of May is
A) $2167.
B) $2000.
C) $1500.
D) $4333.
Gross Profit
Gross Profit is the revenue from sales minus the cost of goods sold, indicating the profitability of a company before accounting for operating expenses, interest, and taxes.
Average Cost Method
A technique for inventory valuation and cost determination that calculates inventory and cost of goods sold based on the average price of all units available during the period.
- Acquire knowledge about how decisions related to inventory costing influence the determination of gross profit.
Verified Answer
2. The cost of the first purchase is 800 x $7 = $5600.
3. The cost of the second purchase is 500 x $9 = $4500.
4. The total cost of the inventory is $1400 + $5600 + $4500 = $11500.
5. The total number of units is 200 + 800 + 500 = 1500.
6. The average cost per unit is $11500 / 1500 = $7.67.
7. The cost of goods sold is 500 x $7.67 = $3835.
8. The gross profit is ($12 - $7.67) x 500 = $2165.
Therefore, the correct answer is A) $2167.
Learning Objectives
- Acquire knowledge about how decisions related to inventory costing influence the determination of gross profit.
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