Question

Inventory information for Cut Above, Inc. is provided below. Sales for the period were 2,000 units
at $10 each. The company uses FIFO.

Date		Number of Units	Unit Cost
Jan. 1	Beginning inventory	1000	$3
Jan. 10	purchase	2000	$4
Jan. 15	purchase	1200	$4.25

Determine the gross profit ratio at January 31? The answer is 65% but I'm not sure how to get the answer. Please show steps clearly, thanks!

Answer 1

Solution:
	Gross profit ratio at January 31	65%
Working Notes:
FIFO	Sales (2000 units @ $10)	20,000	A
	Less: Cost of goods sold
Jan 1.	From beginning inventory	3,000	B
	[1000 units x $3 ]
Jan 10.	From Purchases	4,000	C
	[(2000-1000) x 4 ]
	Gross Margin	13,000	D=A-B-C
Notes:	In FIFO , goods are charged which are first in system like beginning inventory and then purchases done on Jan 10 and if further balance required from Jan 15 to be sold during the period.
	Gross margin ratio = Gross margin /Sales
	Gross margin ratio = 13,000 /20,000
	Gross margin ratio = 0.65
	Gross margin ratio = 65%
Please feel free to ask if anything about above solution in comment section of the question.