Question

RF Company had January 1 inventory of $150,000 when it adopted dollar-value LIFO. During the year, purchases were $900,000 and sales were $1,500,000. December 31 inventory at year-end prices was $215,040, and the price index was 112. What is RF Company's gross profit?

A. $642,000
B. $647,040
C. $1,302,960
D. $665,190

Answer 1

Gross profit = $647,040

so correct option is B. $647,040

Step-by-step explanation:

given data

inventory = $150,000

purchases = $900,000

sales = $1,500,000

inventory end prices = $215,040

price index = 112

to find out

RF Company's gross profit

solution

at 31st December base year inventory prices will be

base year inventory prices =
`(215040)/(1.12)`

base year inventory prices = $192,000

and

now Changes in inventory from beginning will be here as

Changes in inventory from beginning = $192000- $150000

Changes in inventory from beginning = $42,000

so as that 31st December as LIFO

inventory at dollar value is = $150000 × 100% + $42000 × 112%

inventory at dollar value = $150000 + 47040

inventory at dollar value = $197,040

so

Cost of goods sold will be here as

Cost of goods sold = beginning inventory + purchases - ending inventory .........................1

put here value

Cost of goods sold = $150,000 + $900,000 - $197,040

Cost of goods sold = $852,960

so Gross profit will be here

Gross profit = sales - cost of goods sold .........................2

put here value

Gross profit = $1500000 - $852960

Gross profit = $647,040

so correct option is B. $647,040