Question

A firm has the following transactions during January 2020, and it uses LIFO method of inventory. The inventory asset account has a zero balance on January 1, 2020. What is the firm's gross profit (revenues – cost of goods sold) on January 31, 2020?

Date	Transaction Type	Number of Units	Unit Price
1/2/2020	Purchase	100	$25
1/15/2020	Purchase	75	$27
1/16/2020	Purchase	125	$22
1/29/2020	Sale	275	$50

A. $6,985

B. $7,025

C. $7,081

D. $7,100

E. $7,150

Answer 1

LIFO = Last-in-First-Out, means items most recently purchased are sold first. So, Ending Inventory consists of items which are purchased first.

Cost of goods sold = [(125 units * $22) + (75 units * $27) + (75 units * $25)]

Cost of goods sold = $2,750 + $2,025 + $1,875

Cost of goods sold = $6,650

Revenues = 275 units * $50 = $13,750

Gross Profit = Revenues - Cost of goods sold

Gross Profit = $13,750 - $6,650

Gross Profit = $7,100.

So, The firm's Gross Profit = $7,100