Question

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	Unit Cost
7,800	$	900
5,400		1,000
8,800		1,100

The replacement cost of the grills throughout 2019 was $1,200. Cast Iron sold 41,000 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 42,000 units and, second, that Cast Iron purchased 22,000 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 42,000 units (as per the first assumption) and 22,000 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) LIFO :-

First Assumption:-(Purchased 42000 units)

SP = 1200 * 200% = 2400

Sales (41000 * 2400)	98400000
(-) COGS (41000 * 1200)	49200000
Gross Profit	49200000
Gross Profit Ratio (GP/Sales)*100	50%

Second Assumption:-(Purchased 22000 units)

Sales (41000 * 2400)	98400000
(-) COGS (22000 * 1200) + (8800 * 1100) + (5400 * 1000) + (4800 * 900)	45800000
Gross Profit	52600000
Gross Profit Ratio (GP/Sales)*100	53.46%

(4) FIFO :-

First Assumption:-(Purchased 42000 units)

SP = 1200 * 200% = 2400

Sales (41000 * 2400)	98400000
(-) COGS (7800 * 900) + (5400 * 1000) + (8800 * 1100) + (19000 * 1200)	22800000
Gross Profit	75600000
Gross Profit Ratio (GP/Sales)*100	76.83%

Second Assumption:-(Purchased 22000 units)

Sales (41000 * 2400)	98400000
(-) COGS (7800 * 900) + (5400 * 1000) + (8800 * 1100) + (19000 * 1200)	22800000
Gross Profit	75600000
Gross Profit Ratio (GP/Sales)*100	76.83%