Question

During 2020, King's Drug Company experienced a significant increase in the rate of gross profit on sales, compared with the rate it has averaged in recent years. You are asked to determine the most likely reason for this improvement.

Answer 1

The reason is as follows

No of Units Sold = 2300000/50= 46000 Units

No of Units Purchased= 1200000/30= 40000 Units

Six thousand more units were sold than were purchased. This might resulted in the partial liquidation of the beginning LIFO inventory layers. Assuming rising prices, the increased rate of gross profit is most likely due to the matching of old, lower inventory costs against current sales.

Step-by-step explanation: