Final answer:
The gross profit for Arrow Street Market in September, using LIFO, is calculated by summing up individual transaction profits. Transactions on September 2 and 25 provide a total gross profit of $171.50 when accounting for the cost of the most recent inventory first.
Step-by-step explanation:
Calculating Gross Profit Using LIFO
To determine the gross profit for Arrow Street Market's inventory item TH8771 in September using the LIFO method, we need to track the cost of goods sold (COGS) and sales revenue.
Firstly, the sale on September 2 comprises 2 units sold at $22 each, totaling $44 in sales revenue. LIFO dictates that we use the cost of the most recent purchases for COGS. With no purchases between September 1 and 2, the COGS will be based on the initial inventory, at $10 per unit, totaling $20. This results in a gross profit of $24 ($44 - $20) for this transaction.
The second sale on September 25 is 10 units at $25 each, totaling $250 in sales revenue. However, by September 25, there has been an additional purchase of 5 units at $10.50 each. LIFO method entails using the cost of the latest units first. So, the COGS would be the cost of the 5 units purchased on September 10 ($10.50 each) plus the cost of 5 units from the initial inventory at $10 each, totaling $102.50. This results in a gross profit of $147.50 ($250 - $102.50) for this transaction.
Summing up the gross profits from both sales provides the total gross profit for September, which is $171.50 ($24 + $147.50).