Question

Ellis 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 $189,750, and the price index was 110. What is Ellis Company's gross profit?

a.$550,250.
b.$624,750.
c.$450,000.
d.$600,000.

Answer 1

To calculate the gross profit, we need to determine the cost of goods sold (COGS) using the LIFO method. By calculating the LIFO cost of the January 1 and December 31 inventory, as well as the total purchases, we can determine the COGS and calculate the gross profit. The gross profit for Ellis Company is $553,725.

Step-by-step explanation:

To calculate the gross profit, we need to determine the cost of goods sold (COGS). Since the company uses dollar-value LIFO, we can use the LIFO method to calculate COGS. Here's how:

1. Calculate the LIFO cost of the January 1 inventory: $150,000 x 110 (price index) = $165,000.
2. Calculate the LIFO cost of the December 31 inventory: $189,750 x 110 (price index) = $208,725.
3. Calculate the total purchases for the year at LIFO cost: $900,000 x 110 (price index) = $990,000.
4. Calculate the LIFO cost of goods sold: January 1 inventory + purchases - December 31 inventory = $165,000 + $990,000 - $208,725 = $946,275.
5. Calculate the gross profit: Sales - COGS = $1,500,000 - $946,275 = $553,725.

Thus, Ellis Company's gross profit is $553,725.