Question

Cast Iron Grills, Inc., manufactures premium gas barbecue grills. The company uses a periodic inventory system and the LIFO cost method for its grill inventory. Cast Iron's December 31, 2016, fiscal year-end inventory consisted of the following (listed in chronological order of acquisition):Units Unit Cost5,200 $ 600 4,100 700 6,200 800 The replacement cost of the grills throughout 2017 was $900. Cast Iron sold 28,000 grills during 2017. The company's selling price is set at 200% of the current replacement cost.Required:1. Compute the gross profit (sales minus cost of goods sold) and the gross profit ratio for 2017 assuming that Cast Iron purchased 29,000 units during the year.Gross Profit=?Gross Profit Ratio=?2.Compute the gross profit (sales minus cost of goods sold) and the gross profit ratio for 2017 assuming that Cast Iron purchased only 15,500 units during the year. (Round "Gross profit ratio" answer to 1 decimal place (i.e., 0.123 needs to be entered as 12.3%.))Gross Profit=?Gross Profit Ratio=?3. Compute the gross profit (sales minus cost of goods sold) and the gross profit ratio for 2017 assuming that Cast Iron purchased 29,000 units (as per requirement 1) and 15,500 units (as per requirement 2) during the year and uses the FIFO inventory cost method rather than the LIFO method. (Round "Gross profit ratio" answer to 1 decimal place (i.e., 0.123 needs to be entered as 12.3%.))

Answer 1

Answer:

a) ending inventory:     11,850,000

   cost of goods sold: 25,200,000

  gross profit               25,200,000

b)

ending inventory:     1,800,000

cost of goods sold:  23,100,000

gross profit  50,400,000 - 23,100,000 =  27,300,000

Explanation:

5,200 at $600

4,100 at $700

6,200 at $800

purchase 29,000 at $900

-sold 28,000 grills

As we use LIFO we sale from the last purchase thus, 29,000 - 28,000 = 1,000 of this units are added as another layer for the inventory account

ending inventory

5,200 at $  600

4,100 at $   700

6,200 at $  800

1,000  at $  900

Total    $ 11,850,000

cost of good sold:

28,000 x $900 = $25,200,000

sales revenue

28,000 x 900 x 200% = $50,400,000

gross profit sales revenue less COGS

b) 5,200 at $600

4,100 at $700

6,200 at $800

purchase 15,500 at $900

-sold 28,000 grills

we check how many layer deep we go:

28,000 - 15,500 at 900= 12,500

12,500  -  6,200  at 800=  6,300

6,300 - 4,100 at 700      =  2,200  at 600

Ending Inventory

3,000 at $600 = $ 1,800,000

COGS:

15,500 x 900 + 6,200 x 800 + 4,100 x 700 + 2,200 x 600 = 23,100,000