Question

Nueva Company reported the following pretax data for its first year of operations. Net sales 7,360 Cost of goods available for sale 5,670 Operating expenses 1,688 Effective tax rate 15% Ending inventories: If LIFO is elected 627 If FIFO is elected 811 What is Nueva's gross profit ratio if it elects FIFO? Note: Round your answer to two decimal places e.g., 0.1234 as 12.34%.

Multiple choice:
a.56.92%
b.33.98%
c.62.96%
d.31.48%

Answer 1

The gross profit ratio for Nueva Company, using the FIFO method, is 33.98%.

Step-by-step explanation:

The gross profit ratio is calculated by dividing the gross profit by net sales and then multiplying by 100 to get a percentage. Gross profit is the difference between net sales and cost of goods sold.

For the FIFO method, cost of goods sold is equal to the cost of goods available for sale minus the ending inventory, which is $5,670 - $811 = $4,859.

The gross profit is then calculated as $7,360 - $4,859 = $2,501.

Finally, the gross profit ratio is calculated as ($2,501 / $7,360) * 100 = 33.98%.