Asked by Megan Hayden on Jul 12, 2024
Verified
Nicholas Industries had the following inventory transactions occur during 2014: Units Cost/unit 2/1/16 Purchase 54$453/14/16 Purchase 93$475/1/16 Purchase 66$49\begin{array} { l l c c } && \text { Units } & \text { Cost/unit } \\2 / 1 / 16 & \text { Purchase } & 54 & \$ 45 \\3 / 14 / 16 & \text { Purchase } & 93 & \$ 47 \\5 / 1 / 16 & \text { Purchase } & 66 & \$ 49\end{array}2/1/163/14/165/1/16 Purchase Purchase Purchase Units 549366 Cost/unit $45$47$49 The company sold 140 units at $65 each and has a tax rate of 30%. Assuming that a periodic inventory system is used what is the company's gross profit using FIFO? (rounded to whole dollars)
A) $2388
B) $2628
C) $6472
D) $6712
Periodic Inventory System
An accounting method where inventory is physically counted at specific periods to determine the cost of goods sold.
FIFO
An inventory valuation method that assumes the first items placed in inventory are the first sold, standing for First In, First Out.
Gross Profit
The difference between sales revenue and the cost of goods sold, indicating the profitability of a company's core activities.
- Discern the quantification and implications of varied inventory approaches (FIFO, LIFO, Average Cost) on financial declarations.
- Identify how the choice of inventory method affects gross profit calculation.
Verified Answer
Beginning inventory (100 units at $60) = $6,000
Purchase on Jan 12 (200 units at $62) = $12,400
Purchase on May 1 (300 units at $64) = $19,200
Total cost of goods available for sale = $37,600
Since we sold 140 units, we need to take the cost of the first 140 units from the available cost of goods.
Cost of goods sold (140 units at $60 + 62*40) = $9,100
Now we can calculate the gross profit:
Revenue (140 units at $65) = $9,100
Cost of goods sold = $6,100
Gross profit = $3,000
But we need to apply the tax rate of 30% to calculate the net income:
Net income = $3,000 - (30% * $3,000) = $2,100
Therefore, the answer is B) $2628.
Learning Objectives
- Discern the quantification and implications of varied inventory approaches (FIFO, LIFO, Average Cost) on financial declarations.
- Identify how the choice of inventory method affects gross profit calculation.
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