Question

$6 • Creative Metal Socks produces a product with the following costs as of July 1, 2012: Materials Labor $4 Overhead Total $12 $2 Beginning Inventory at these costs on July 1 was 5,000 units. From July 1 to December 1, CMS produced 15,000 units. These units had a material costs of $10/unit. The costs for labor and overhead were the same. CMS uses FIFO inventory accounting . Assuming CMS sold 17,000 units during the last six month of the year at $20/each, what would gross profit be? What is the value of ending inventory?

Answer 1

Beginning Inventory:

Cost per unit = Materials + Labor + Overhead
Cost per unit = $6 + $4 + $2
Cost per unit = $12

Number of units = 5,000

Production:

Cost per unit = Materials + Labor + Overhead
Cost per unit = $10 + $4 + $2
Cost per unit = $16

Number of units = 15,000

Number of units sold = 17,000

Sales = Selling price per unit * Number of units sold
Sales = $20.00 * 17,000
Sales = $340,000

Cost of goods sold = 5,000 * $12.00 + 12,000 * $16.00
Cost of goods sold = $252,000

Gross profit = Sales - Cost of goods sold
Gross profit = $340,000 - $252,000
Gross profit = $88,000

Ending inventory = 3,000 * $16.00
Ending inventory = $48,000