Question

Turner corporation acquired two inventory items at a lump sum cost of $100,000. The acquisition included 3,000 units of product LF, and 7000 units of product 1B. LF normally sells for $30 per unit and 1B for $10 per unit. If Turner sells 1000 units of LF what amount of gross profit should it recognize?

a) $3750
b) $11250
c) $20000
d) 23,750

Answer 1

$11,250

Step-by-step explanation:

Given:

Cost of inventory acquired = $100,000

Total number of product LF = 3,000

units of product 1B = 7,000

Selling price of LF = $30 per unit

Selling price of 1B = $10 per unit

Number of units of LF sold = 1000

Now,

Total Selling price = 3000 × $30 + 7,000 × $10

= $9,000 + $7,000

= $160,000

Overall Gross profit = Total Selling price - Cost of inventory acquired

= $160,000 - $100,000

= $60,000

The proportion of cost for LF =
`\frac{\textup{Cost of inventory acquired}}{\textup{Total Selling price}}*\textup{Total selling price of LF}`

=
`(100,000)/(160,000)*30`

= $18.75

Cost of 1000 units of LF = 1000 × $18.75 = $18,750

Sale price of 1000 units of LF = 1000 × $30 = $30,000

Therefore,

Gross profit to be recognized for 1000 units of LF = $30,000 - $18,750

= $11,250