The following data was extracted from the records of Winsam Company:
Sales Revenue 450 units at $35 per unit
Beginning Inventory 100 units at $16 per unit
Purchases 400 units at $20 per unit
What is the gross profit using the FIFO method?
The profit is computed by deducting the cost of goods sold from the sales value. A higher gross profit margin is preferred by a company. A higher gross profit margin denotes the difference between sales value and the cost of goods sold.
Answer and Explanation:
The gross profit using the FIFO method is $7,150.
Explanation: The gross profit using the FIFO method is $7,150 ($15,750 - $8,600), which has been computed by deducting the cost of goods sold from the sales revenue.
Working Note 1: The cost of the total purchases is $8,000 ($20 x 400).
Working Note 2: The cost of goods avaliable for sale is $9,600 ($8,000 + $16 x 100).
Working Note 3: The total sales value is $15,750 ($35 x 450).
Working Note 4: The cost of ending inventory is $1,000 ($20 x 50).
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from Financial Accounting: Help and ReviewChapter 5 / Lesson 17