Question

In 2020, the Alnoor Company purchased from Hamoorthe right to be the sole distributor in Muscat governance of a product called Zelenex in 2021.

Alnoor reports inventory using the periodic FIFO assumption. Late in 2021, the following information is available concerning the inventory of Zelenex:

Beginning inventory, 1/1/2021 (10,000 units @ $30)	$ 300,000
Purchases (40,000 units @ $30)	1,200,000
Sales (35,000 units @ $60)	2,100,000

By the end of the year, the purchase price of Zelenex had risen to $40 per unit. On December 28, 2021, three days before year-end, Alnoor is in a position to purchase 20,000 additional units of Zelenex at the $40 per unit price. Due to the increase in purchase price, Alnoor will increase the selling price in 2022 to $80 per unit. Inventory on hand before the purchase, 15,000 units, is sufficient to meet the next six months’ sales and the company does not anticipate any significant changes in purchase price during 2022.

REQUIRED:

a)      Determine the effect of the purchase of the additional 20,000 units on the 2021 gross profit from the sale of Zelenex and the payment due to Hamoor.

b)     Assume that during 2022 Alnoor Company bought 50,000 units of Zelenex with the new purchase price, and 40% of units available for sale had been sold. Calculate the gross profit for the company for the year 2022.

Answer 1

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