Question

Sheridan Industries had the following inventory transactions occur during 2020: Units Cost/unit 2/1/20 Purchase 52 $47 3/14/20 Purchase 90 $50 5/1/20 Purchase 70 $52 The company sold 157 units at $70 each and has a tax rate of 20%. Assuming that a periodic inventory system is used, what is the company’s gross profit using LIFO? (rounded to whole dollars)

Answer 1

Answer:

$3,000

Explanation:

                                           Units          Cost/unit

2/1/20 Purchase                   52                $47

3/14/20 Purchase                 90                $50

5/1/20 Purchase                   70                 $52

157 units were sold at $70 per unit

tax rate = 20%

FIFO method calculates COGS using the price of the last units purchased.

COGS using last in, first out (LIFO) = (70 x $52) + (87 x $50) = $3,640 + $4,350 = $7,990

gross profit = total sales revenue - COGS = (157 x $70) - $7,990 = $10,990 - $7,990 = $3,000

Answer 2

Answer: $3,000

Explanation:

Given the following;

2/1/20:

Units purchased = 52

Cost = $47

3/14/20:

Units purchased = 90

Cost $50

5/1/20:

Units purchased = 70

Cost = $52

Total sold = 157

Cost per unit = $70

(157 × $70) = $10,990

Assuming periodic inventory using LIFO;

Under the LIFO Inventory principle, prices of last inventory purchased is associated with the price of goods sold until units or items in the inventory that inventory is exhausted, them move to the second most recent inventory and so on.

LIFO:

(70 × $52) + [(157 - 70) × $50] =

$3640 + (87 × $50)

$3640 + $4350 = $7,990

GROSS INCOME = $(10,990 - 7,990)

GROSS INCOME = $3,000