Question

Cast Iron Grills, Inc., manufactures premium gas barbecue grills. The company reports inventory and cost of goods sold based on calculations from a LIFO periodic inventory system. Cast Iron’s December 31, 2021, fiscal year-end inventory consisted of the following (listed in chronological order of acquisition):

Units	Unit Cost
5,000	$	700
4,000		800
6,000		900

The replacement cost of the grills throughout 2022 was $1,000. Cast Iron sold 27,000 grills during 2022. 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 2022 under two different assumptions. First, that Cast Iron purchased 28,000 units and, second, that Cast Iron purchased 15,000 units during the year.
4. Compute the gross profit (sales minus cost of goods sold) and the gross profit ratio for 2022 assuming that Cast Iron purchased 28,000 units (as per the first assumption) and 15,000 units (as per the second assumption) during the year and uses the FIFO inventory cost method rather than the LIFO method.

Answer 1

1&2)

Cost of goods sold (28000 units)		Cost of goods sold (15000 units)
Activity	Units	Unit Price	Amount	Units	Unit Price	Amount
Purchase	27,000.00	1,000.00	27,000,000.00	15,000.00	1,000.00	15,000,000.00
Beginning Inventory				6,000.00	900.00	5,400,000.00
				4,000.00	800.00	3,200,000.00
				2,000.00	700.00	1,400,000.00
Total	27,000.00		27,000,000.00	27,000.00		25,000,000.00
Purchased units	28,000.00	15,000.00
Sales	54,000,000.00	54,000,000.00
Cost of Goods sold	27,000,000.00	25,000,000.00
Gross Profit	27,000,000.00	29,000,000.00
Gross Profit (%)	50.00%	53.70%

4)

Cost of goods sold (28000 units)		Cost of goods sold (15000 units)
Activity	Units	Unit Price	Amount	Units	Unit Price	Amount
Purchase	5,000.00	700.00	3,500,000.00	5,000.00	700.00	3,500,000.00
Beginning Inventory	4,000.00	800.00	3,200,000.00	4,000.00	800.00	3,200,000.00
	6,000.00	900.00	5,400,000.00	6,000.00	900.00	5,400,000.00
	12,000.00	1,000.00	12,000,000.00	12,000.00	1,000.00	12,000,000.00
Total	27,000.00		24,100,000.00	27,000.00		24,100,000.00
Purchased units	28,000.00	15,000.00
Sales	54,000,000.00	54,000,000.00
Cost of Goods sold	24,100,000.00	24,100,000.00
Gross Profit	29,900,000.00	29,900,000.00
Gross Profit (%)	55.37%	55.37%