Question

Sunland Company sells one product. Presented below is information for January for Sunland Company.

Jan. 1		Inventory		113	units at $4 each
4		Sale		92	units at $8 each
11		Purchase		141	units at $6 each
13		Sale		112	units at $9 each
20		Purchase		154	units at $7 each
27		Sale		93	units at $11 each

Sunland uses the FIFO cost flow assumption. All purchases and sales are on account.

Compute gross profit using the perpetual system.

Gross profit

$

Answer 1

1. Compute gross profit using the perpetual system.

Answer:

Gross profit

1,168

Calculation:

Here the Sunland uses the FIFO cost flow assumption and perpetual system.

So we need to first find the cost of goods sold using FIFO.

In the FIFO method, the inventory first bought is sold first. Thus we need to deduct the inventory balannce at first for each of the sales happenening..

The cost of goods calculation is done below:

	Goods Purchased			Cost of Goods Sold				Inventory Balance
Date	#of units	@	Cost per Unit	# of units sold	@	Cost per Unit	Cost of Goods Sold	# of units sold	@	Cost per Unit	Inventory Balance
Jan-01								113		4	452
								113		4	452
Jan-04				92		4	368	21		4	84
								21		4	84
Jan-11	141		6					141		6	846
Jan-13				21		4	84	0		4	0
				91		6	546	50		6	300
Jan-20	154		7					154		7	1078
Jan-27				50		6	300	0		6	0
				43		7	301	111		7	777
Total							1,599				777

The cost of goods sold = 1,599

Then we need to find the total sales.

	Units (a)	Price (b)	Sales (a) x (b)
Jan-04	92	8	736
Jan-13	112	9	1,008
Jan-27	93	11	1,023

So total sales = 736 + 1,008 + 1,023 = 2,767

Then we need to calculate the Gross profit. It is the variance of sales and cost of goods sold.

Gross profit = sales - cost of goods sold = 2,767 - 1,599 = 1,168