Question

Effie Company uses a periodic inventory system. Details for the inventory account for the month of January, 2018 are as follows: UnitsPer unit priceTotal Balance, 1/1/18200$5.00$1,000 Purchase, 1/15/181005.30530 Purchase, 1/28/181005.50550
An end of the month (1/31/13) inventory showed that 140 units were on hand. If the company uses FIFO and sells the units for $10 each, what is the gross profit for the month?

a. 1220

b. 1282

c. 1838

4. 1900

Answer 1

Answer:

B) 1282

Explanation:

                                      Units         Per unit price        Total

Balance, 1/1/18               200               $5.00               $1,000

Purchase, 1/15/18           100                $5.30                 $530

Purchase, 1/28/18          100                $5.50                 $550

total                                400                                       $2,080

Balance, 1/31/18              140                                          $762

the first in, first out inventory method assigns cost of goods sold to the oldest merchandise available, so the 1/31/18 inventory's balance = (100 x $5.50) + (40 x $5.30) = $550 + $212 = $762

So COGS = $2,080 - $762 = $1,318

gross profit = revenue - COGS = [(400 - 140) x $10] - $1,318 = $2,600 - $1,318 = $1,282