In: Finance
The Bradley Corporation produces a product with the following costs as of July 1, 20X1:
Material | $4 per unit |
Labor | 4 per unit |
Overhead | 2 per unit |
Beginning inventory at these costs on July 1 was 3,500 units.
From July 1 to December 1, 20X1, Bradley produced 13,000 units.
These units had a material cost of $4, labor of $6, and overhead of
$4 per unit. Bradley uses LIFO inventory accounting.
a. Assuming that Bradley sold 15,000 units during the last six months of the year at $19 each, what is its gross profit?
b. What is the value of ending inventory?
In case of LIFO method the inventory which are produced later are sold and the earlier one are kept at part of inventory | |||||||||
Therefore of the 15,000 units sold by the company 13,000 units would be sold from the units produced and 2,000 units from beginning inventory | |||||||||
The ending inventory units would be 1,500 (3500+13000-15000) | |||||||||
Formula to calculate gross profit | |||||||||
Gross Profit = Sales - Cost of goods sold | |||||||||
Computation of Gross profit is shown below | |||||||||
Sales (15000*19) | $285,000 | ||||||||
Less : Cost of goods sold | |||||||||
From new inventory: | |||||||||
Quantity | 13000 | ||||||||
Cost per unit (4+6+4) | $14 | ||||||||
Total | $182,000 | ||||||||
From old inventory: | |||||||||
Quantity | 2000 | ||||||||
Cost per unit (4+4+2) | $10 | ||||||||
Total | $20,000 | ||||||||
Total cost of goods sold | $202,000 | ||||||||
Gross Profit | $83,000 | ||||||||
The gross profit of the company is $83,000 | |||||||||
Computation of value of ending inventory | |||||||||
Ending inventory units | 1500 | ||||||||
Cost per unit (4+4+2) | $10 | ||||||||
Value of inventory | $15,000 | ||||||||
The value of ending inventory is $15,000 |