Question

The following information was available from the January inventory records of Rich Company:

                                                       Units      Unit Cost   Total Cost

Balance at January 1                     800         $10.00          $8,000

      Purchases:

            January 6                            600         11.00             6,600

            January 26                          800         12.00 9,600

Rich maintains a perpetual inventory system and costs inventory using last-in, first-out (LIFO). Sales included: 900 units on Jan 7, and 600 units on Jan 31. All units sold for $20 each. Operating expenses were $500 for the month of January. Assume a 40% tax rate.

a.    How many units are in ending inventory?

b.    What is the cost of the units in ending inventory?

c.    How much is gross profit from the sales of inventory?

NOTE: Label each response (a) and (b) separately. Be sure to show all calculations and label your numbers.

Answer 1

Answer a : Unit in ending inventory = 700 Units

Calculated as

Ending units = Beginning units + purchases - sold units = 800+(600+800)-(900+600) = 700 Units

Answer b Cost of ending units = $7400

Calculated as

Calculation of cost of ending units
Balance from beginning units	500	10	$        5,000
Balance from purchase on Jan 26	200	12	$        2,400
Value of units in ending inventory			$        7,400

Answer c. Gross profit = $13200

Calculated as

Calculation of Gross profit
Sale
sold on January 7	900	20	$        18,000
Sold on January 31	600	20	$        12,000
Total Sale			$        30,000	$        30,000
Less: Cost of Goods sold				$        16,800
Gross profit				$        13,200

Calculation of Cost of Goods sold
Cost of Units sold on 7 January
From Purchase on January 6	600	11	$          6,600
From Beginning unit on January 1	300	10	$          3,000
Cost of Goods sold on January 7			$          9,600	$          9,600
Cost of Goods sold on January 31
From Purchase on Jan 26	600	12	$          7,200
Cost of goods sold on January 31			$          7,200	$          7,200
Total Cost of Goods sold				$        16,800