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Cullumber Corporation acquired two inventory items at a lump-sum cost of $85000. The acquisition included 2670...

Cullumber Corporation acquired two inventory items at a lump-sum cost of $85000. The acquisition included 2670 units of product CF, and 5340 units of product 3B. CF normally sells for $30 per unit, and 3B for $10 per unit. If Cullumber sells 890 units of CF, what amount of gross profit should it recognize?

Expert Solution

Lumpsum Cost of acquiring CF and 3B = $85,000

Appropriate basis of apportionment of cost between the inventories is sales value.

Sale Value of CF

= Units Produced * Selling price per unit

= 2670 * $30

= $80,100

Sale Value of 3B

= Units Produced * Selling price per unit

= 5340 * $10

= $53,400

Total Sales Value

= Sale Value of CF + Sale Value of 3B

= $80,100 + $53,400

= $133,500

Apportionment of lumpsum cost between CF and 3B based on Sale Value:

Apportioned Cost to CF

= Lumpsum Cost * Sale Value of CF / Total Sale Value

= $85,000 * $80,100 / $133,500

= $51,000

Apportioned Cost to 3B

= Lumpsum Cost * Sale Value of CF / Total Sale Value

= $85,000 * $53,400 / $133,500

= $34,000

Unit Cost of CF

= Apportioned Cost/ Units Produced

= $51,000 / 2670

= $19.1011236

Selling Price per unit of CF = $30

Gross Profit per unit of CF

= Selling Price - Cost

= $30 - $19.1011236

= $10.8988764

Total Gross profit from CF to be recognized

= Gross Profit per unit * Units Sold

= $10.8988764 * 890

= $9,700

Gross Profit to be recognised if 890 units of CF are sold = $9,700

ekkarill92 answered 2 years ago

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