Question

AOTD Inc. had beginning inventory of 5,700 that cost $4.00 each. It purchased an additional 4,000 units for $6.00 during the period. AOTD Inc. then sold 4,400 units for $18. If the company recognized gross profit of $51,000 on the sale, what inventory method is AOTD Inc. using? (A 14)

		LIFO
		FIFO
		Weighted Average
		There is not enough information to answer this question.

Answer 1

Correct Answer:

Option: There is not enough information to answer this question.

Working:

Gross profit = $ 51,000  

Sales Revenues = $ 79,200 (4,400 units * $ 18)

Cost of goods sold = Sales revenue – Gross profit.

Cost of goods sold = $ 28,200

We need $ 28,200 of cost of goods sold, in order to earn a gross profit of $ 51,000

Therefore, whichever method is resulting in cost of goods sold equal to $ 28,200, AOTD Inc. must be using that method.

But no method is giving cost of goods sold equal to $ 28,200

FIFO
Cost of Goods Sold		4400	*	$                4.00	=	$              17,600

LIFO
Cost of Goods Sold		4000	*	$                6.00	=	$              24,000
		400	*	$                4.00	=	$                1,600
Total Cost of Goods Sold		4400	units			$              25,600

Weighted Average Cost Per unit
Units		(A)	9700
Total Cost		(B)	$    46,800
Average Cost		(C=B/A)	$         4.82

Average cost
Cost of Goods Sold		4400	*	$            4.82	=	$              21,229

End of answer.

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