Question

Exercise 5-3a (algo) allocating product cost between cost of goods sold and ending inventory: multiple purchases lo 5-1.

Options:
a) FIFO method, LIFO method, Weighted Average method
b) Specific Identification method, LIFO method, Weighted Average method
c) FIFO method, Specific Identification method, LIFO method
d) Weighted Average method, FIFO method, Specific Identification method

Answer 1

To determine profits or losses for the WipeOut Ski Company selling 5 units at $25 each, subtract the total production costs from total revenue. Comparing average cost to selling price will indicate profit or loss. The marginal unit adds to profits if its cost is less than the selling price.

Step-by-step explanation:

When examining the profits or losses for the WipeOut Ski Company where 5 units are sold at a price of $25 each, the calculation must include the cost of producing these units as well as the revenue generated from sales. Assuming the cost information is based on previous answers in Exercise 7.3, one would subtract total costs from the total revenue to determine profit or loss.

You can easily determine if the company is making or losing money by comparing the average cost per unit to the selling price per unit. If the average cost is lower than the selling price, the company is making a profit. Conversely, if the average cost is higher than the selling price, the company is incurring a loss.

As for the marginal unit, it is adding to profits if the cost to produce one additional unit (marginal cost) is less than the selling price received for that unit.