Question

Seec: Color Fite's Etects Tools Retour Share Sute Save Print Crop Resize Rotate Free Form Import Webcam Screenshot Collage image Text Cast Iron Grills, Inc., manufactures premium gas barbecue grills. The company uses a periodic inventory system and the LIFO cost method for its grill inventory. Cast Iron's December 31, 2018, fiscal year-end inventory consisted of the following (listed in chronological order of acquisition): Units 6,600 4,800 7,600 Unit Cost $ 500 600 700 The replacement cost of the grills throughout 2019 was $800. Cast Iron sold 35,000 grills during 2019. The company's selling price is set at 200% of the current replacement cost. Required: 1. & 2. Compute the gross profit (sales minus cost of goods sold) and the gross profit ratio for 2019 under two different assumptions. First, that Cast Iron purchased 36,000 units and second, that Cast Iron purchased 19 000 units during the year. 4. Compute the gross profit (sales minus cost of goods sold) and the gross profit ratio for 2019 assuming that Cast Iron purchased 36.000 units (as per the first assumption) and 19.000 units (as per the second assumption) during the year and uses the FIFO inventory cost method rather than the LIFO method Loading Thumbnail

Answer 1

1.LIFO method states that inventory purchased later will be sold first

Gross Profit = Sales – Cost of goods sold

= 35,000*1,600 – 35,000*800 = 28,000,000

Gross Profit Ratio = Gross Profit/Sales

=50%

Purchased 19,000 units

2.Gross Profit = 35,000*1,600 – (19,000*800+7,600*700 + 4,800*600 + 3,600*500)

= $30,800,000

Gross profit ratio = 30,800,000/56,000,000

= 55%

3.Since When the number of units purchased is lower than units sold, the extra units will be sold from beginning inventory purchased at lower cost

4.FIFO method states that inventory purchased first will be sold first

Gross Profit = 35,000*1,600 – (6,600*500+4,800*600+7,600*700+16,000*800)

= $31,700,000

Gross profit ratio = 31,700,000/56,000,000 = 56.6071% or 56.61%

Same answer for both cases