Question

Convex Mechanical Supplies produces a product with the following costs as of July 1, 20X1:

Material $ 4
Labor 2
Overhead 1
$ 7
Beginning inventory at these costs on July 1 was 6,400 units. From July 1 to December 1, Convex produced 17,500 units. These units had a material cost of $9 per unit. The costs for labor and overhead were the same. Convex uses FIFO inventory accounting.
Assuming that Convex sold 19,500 units during the last six months of the year at $18 each, what would gross profit be?

Answer 1

The gross profit for Convex Mechanical Supplies is $149,000. This was calculated by finding the COGS using FIFO accounting for 19,500 units sold and subtracting it from the total revenue generated from sales at $18 each.

Step-by-step explanation:

To calculate the gross profit for Convex Mechanical Supplies, we need to follow several steps, considering they use FIFO inventory accounting and sold 19,500 units at $18 each.

1. Calculate the cost of goods sold (COGS) for the units sold.
2. Determine the revenue from the units sold.
3. Subtract COGS from revenue to get the gross profit.

To begin, since Convex uses FIFO (First In, First Out), we first sell the beginning inventory before the new inventory. The beginning inventory consists of 6,400 units at $7 each, and then we'll sell 13,100 units (19500 - 6400) from the new production at a cost of $12 each (Material: $9, Labor: $2, Overhead: $1).

COGS = (6400 units x $7) + (13100 units x $12)
= $44,800 + $157,200
= $202,000

The revenue from selling 19,500 units at $18 each is:

Revenue = 19,500 units x $18
= $351,000

Finally, gross profit is calculated as:

Gross Profit = Revenue - COGS
= $351,000 - $202,000
= $149,000

Therefore, the gross profit for Convex Mechanical Supplies is $149,000.