Question

Jermaine Dye Corporation acquired two inventory items at a lump-sum cost of $50,000. The acquisition included 3,000 units of product LF, and 7,000 units of product 1B. LF normally sells for $15 per unit, and 1B for $5 per unit. If Dye sells 1,000 units of LF, what amount of gross profit should it recognize?

Answer 1

Answer:

Gross profit=15,000-9,375=$5,625

Explanation:

Gross profit can be calculated by the any corporation as follows:

Gross profit: Sales- Cost of sales

In given scenario, sales and cost of sales can be determined as follows:

Sales=Number of LF units sold by Jermaine Dye Corporation*sale price per unit of LF

       =1,000*15=$15,000

The corporation is selling LF for 15$ which is 3 times the price at which it is selling 1B and assuming that the entity is earning same gross profit margin on both products, then cost of sales can be determined as follows:

Lets say that cost of one unit of "1B" is "z" then the cost of one unit of "LF" will be "3z" and following equation can be formed for cost of sales:

3,000(3z)+7,000(z)=50,000

9000z+7000z=50,000

16,000z=50,000

z=$3.125(50,000/16,000)=cost of one unit of 1B

Cost for one unit of LF=3*3.125=$9.375

Cost of sales for 1,000 units=9.375*1000=$9,375

Gross profit=15,000-9,375=$5,625