Question

The Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1.

Date Product Z Units Cost

May 3 Purchase 5 $30

May 10 Sale 3

May 17 Purchase 10 $34

May 20 Sale 6

May 23 Sale 3

May 30 Purchase 10 $40

Assuming that the company uses the perpetual inventory system, determine the gross profit for the sale of May 23 using the FIFO inventory cost method. :

-$180

-$102

-$78

-$90

Answer 1

solution

given data

Boxwood Company sells blankets for $60 each.

Date Product are Z Units Cost

May 3 Purchase 5 $30 ,may 10 sale 3 , may 17 purchase 10 $34,may 20 sale 6,may 23 sale 3

May 30 Purchase 10 $40

Correct option is c: $196

Explanation:

In FIFO we use first in first out,

  which good are purchased first,  they will be sale first.
Cost of merchandise sold(6 units):
=[(5-3)units×$30]+[(10-6)units ×$34]
=(2 units ×$30) +(4 units×$34)
=$196
From May 3 purchase, Only 2 units are left in stock after May 10 sale

  so these 2 units cost is 2×$30

=$60
Rest of 4 units are sold from May 17 purchase.

  So cost of these 4 units is 4×$34

=$136
So total cost of 6 units which are sold on May 20 is ($60+$136=$196)  under FIFO