Question

On January 1, 2016 Oxford Company had 3,500 units in inventory at a cost of $9 per unit.  During 2016 Oxford company purchased 3,000 units (Lot #1 - the first units purchased during the year) at a cost of $9.50 per unit, 4,000 units (Lot #2) at a cost of $10.50 per unit and 2,500 units (Lot #3) at a cost of $10 per unit.  The company sold 8,700 units during 2016 at a sales price of $12.25 per unit.  If Oxford Company uses a periodic inventory system and the first-in-first-out (FIFO) method, then what is the company's gross profit for 2016?

	a.	$23,475
	b.	$21,075
	c.	$18,675
	d.	$17,175

Answer 1

Under FIFO method goods purchased first are sold first. Therefore sale of 8,700 units will be made from 3,500 units from beginning inventory + 3,000 units from Lot 1 + remaining 2,200 units from Lot 2

Therefore cost of goods sold

= 3,500*9 + 3,000*9.50 + 2,200*10.50

= 31,500 + 28,500 + 23,100

= $83,100

Sales = 8,700*12.25 = $106,575

Gross profit = Sales - Cost of goods sold

= 106,575 - 83,100

= $23,475.

Therefore the correct option is A.

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