Question

The company just starting in business purchased three merchandise inventory items at the following prices. First purchase 80 second purchase 95 third purchase 85. If the company sold two units for a total of 250 and used FIFO costing, the gross profit for the company would be?

1) $50
2) $60
3) $70
4) $80

Answer 1

Using FIFO costing, the cost of goods sold for the two units is $175 ($80 + $95). Subtracting this from the sales revenue of $250 gives a gross profit of $75, though this is not one of the provided options.

Step-by-step explanation:

The student is asking a question related to the calculation of gross profit using the First-In, First-Out (FIFO) inventory costing method in a business context. To calculate the gross profit, we must determine the cost of goods sold (COGS) based on the FIFO method, and then subtract this from the sales revenue.

FIFO costing means that the first items purchased are the first ones to be sold. In this scenario, the company made three purchases at different prices ($80, $95, and $85) and sold two units for a total of $250. Using FIFO, the first two units purchased (at $80 and $95) would be the ones sold. Therefore, the COGS would be $80 + $95 = $175. The gross profit would then be calculated as follows:

Sales Revenue ($250) - COGS ($175) = Gross Profit ($75).

However, this result is not found in the options provided by the student. There may be an error in the question or the provided options. It's important to double-check the details of the question or seek clarification if possible.