Final answer:
Jersey Company is using the weighted average cost flow assumption as evidenced by their COGS of $2,400, which matches the calculated COGS using the average cost of $6 per unit for 400 units sold. b.is LIFO.
Step-by-step explanation:
The student's question relates to inventory accounting and requires us to ascertain which cost flow assumption Jersey Company used based on the given information. Since Jersey Company sold 400 units at a price of $10 each, their total revenue from these sales is $4,000. With a reported gross profit of $1,600, the cost of goods sold (COGS) is $2,400 ($4,000 revenue - $1,600 profit). Knowing that they started with 500 units at $4 each, the cost of this beginning inventory is $2,000.
After purchasing an additional 300 units for $2,800, if they used the FIFO (First-In, First-Out) method, the first 400 units out of the total 800 (500 beginning + 300 purchased) would have been at the original cost of $4 per unit, totaling $1,600 (400 units x $4). However, since the COGS is $2,400, this is not the case. If they used LIFO (Last-In, First-Out), the last 300 units purchased at $9.33 each ($2,800/300 units) and 100 of the beginning inventory at $4 would have been sold. This also does not match our COGS of $2,400.
Using the weighted average method, the average cost of each unit would be $4,800 (500 x $4 + 300 x $9.33) divided by 800 total units, equaling $6 per unit. The COGS for 400 units would be $2,400 (400 x $6), aligning with the given COGS in the question. Therefore, the correct answer is d. Jersey Company is using the weighted average cost flow assumption.