Final Answer:
Using the FIFO method, the company's cost of goods sold is calculated by prioritizing the costs of the earliest inventory purchases. The gross profit is then obtained by subtracting the cost of goods sold from the total revenue, resulting in B) $3,552.
Step-by-step explanation:
In the FIFO (First-In-First-Out) inventory costing method, Romanoff Industries allocates the costs of its inventory based on the assumption that the earliest acquired inventory items are the first to be sold. In the given transactions for 2015, three purchases occurred with varying unit costs: $45, $47, and $49. The company sold 150 units during the period at a price of $70 each. To determine the cost of goods sold (COGS) under FIFO, the calculation involves prioritizing the costs of the earliest purchases.
Specifically, the calculation is as follows: (54 units * $45) + (93 units * $47) + (3 units * $49) = Total Cost of Goods Sold. This results in a COGS of $6,948. The gross profit is then derived by subtracting the COGS from the total revenue (150 units * $70), yielding $10,500 - $6,948 = $3,552. Therefore, the company's gross profit using the FIFO method is $3,552.
Understanding inventory costing methods is crucial for financial analysis, as it directly impacts a company's reported profitability and financial position. Different methods, such as FIFO, LIFO, or weighted average, can lead to distinct financial outcomes, influencing decision-making and financial statement interpretation.