Question

6. 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, 1/1/16 200 $5.00 $1,000 Purchase, 1/15/16 100 5.30 530 Purchase, 1/28/16 100 5.50 550 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. $1,000 b. $985 c. $900 d. $1,440

Answer 1

Under FIFO, First purchased items are sold first. So, the ending inventory comprises mostly of last purchased items.

Total goods available for sale = (200 + 100 + 100) = 400 units

Less: Ending Inventory = 150 units

Sales = 250 units

Sales value = 250 units * $9 = $2,250

Cost of goods sold (FIFO) = (200 * $5) + (50 * $5.30) = $1,265

Gross profit = $2,250 - $1,265 = $985

So, Gross profit for the month = $985