Question

The boxwood company sells blankets for $39 each. the following was taken from the inventory records during may. the company had no beginning inventory on may 1. date blankets units cost may 3 purchase 36 $14 10 sale 14 17 purchase 38 $16 20 sale 25 23 sale 5 30 purchase 21 $17 assuming that the company uses the perpetual inventory system, determine the gross profit for the sale of may 23 using the fifo inventory cost method.

a. $115
b. $308
c. $80
d. $356

Answer 1

To find the gross profit for the sale on May 23, the FIFO inventory cost method is applied; the cost of the oldest inventory is used to calculate COGS. After calculating the COGS as $80 and the sales revenue as $195, the gross profit is found to be $115. The correct option is A.

Step-by-step explanation:

To determine the gross profit for the sale on May 23rd using the FIFO inventory cost method, we need to follow these steps:

1. Identify the cost of the latest inventory prior to the May 23 sale.
2. Calculate the cost of goods sold (COGS) for the sale.
3. Subtract the COGS from the sales revenue to find the gross profit.

In this case:

1. As of May 23, the company sold 5 blankets. Because we are using FIFO, we take the cost from the oldest inventory, which is from the May 17 purchase at $16 each.
2. COGS = 5 blankets × $16/blanket = $80.
3. The sales revenue for 5 blankets is 5 × $39 = $195.
4. Gross Profit = Sales Revenue - COGS = $195 - $80 = $115.

Therefore, the correct answer is A. $115. The correct option is A.