Asked by Kennedy Ellison on Jun 11, 2024
Verified
Elly Company uses a periodic inventory system. Details for the inventory account for the month of January 2016 are as follows: Units Per unit price Total Balance, 1/1/16200$5.00$1,000 Purchase, 1/15/161005.30530 Purchase, 1/28/161005.50550\begin{array} { l c c r } & \text { Units } & \text { Per unit price } & \text { Total } \\\hline\text { Balance, } 1 / 1 / 16 & 200 & \$ 5.00 & \$ 1,000 \\\text { Purchase, } 1 / 15 / 16 & 100 & 5.30 & 530 \\\text { Purchase, } 1 / 28 / 16 & 100 & 5.50 & 550\end{array} Balance, 1/1/16 Purchase, 1/15/16 Purchase, 1/28/16 Units 200100100 Per unit price $5.005.305.50 Total $1,000530550 An end of the month (1/31/16) inventory showed that 150 units were on hand. If the company uses FIFO and sells the units for $9 each what is the gross profit for the month?
A) $1000
B) $985
C) $900
D) $1440
FIFO
"First In, First Out," an inventory management and valuation method assuming the first items acquired are the first ones sold.
Gross Profit
The difference between sales revenue and the cost of goods sold before accounting for administrative and selling expenses.
Units
A measure of quantity or amount in accounting, production, or inventory management, often used to quantify items, products, or resources.
- Assess the terminal inventory and ascertain the cost of goods sold by adopting disparate inventory costing techniques (FIFO, LIFO, average cost).
- Comprehend the impact of choices regarding inventory costing on the calculation of gross profit.
Verified Answer
Cost of beginning inventory (50 units x $5) = $250
Cost of first purchase (100 units x $6) = $600
Total cost of goods available for sale = $850
150 units were sold, so the COGS will be calculated using the first 50 units from the beginning inventory plus 100 units from the first purchase.
COGS = (50 units x $5) + (100 units x $6) = $650
Revenue = 150 units x $9 = $1350
Gross profit = Revenue - COGS = $1350 - $650 = $700
Therefore, the correct answer is (B) $985.
Learning Objectives
- Assess the terminal inventory and ascertain the cost of goods sold by adopting disparate inventory costing techniques (FIFO, LIFO, average cost).
- Comprehend the impact of choices regarding inventory costing on the calculation of gross profit.
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