Question

Novak Corp. uses a periodic inventory system. Details for the inventory account for the month of January 2017 are as follows:

		Units		Per unit price		Total
Balance, 1/1/2017		370		$6.0		$2220
Purchase, 1/15/2017		180		..6.5		1170
Purchase, 1/28/2017		180		..6.7		1206

An end of the month (1/31/2017) inventory showed that 290 units were on hand. If the company uses FIFO and sells the units for $12.0 each, what is the gross profit for the month?

Answer 1

January 2017 are as follows:

		Units		Per unit price		Total
Balance, 1/1/2017		370		$6.0		$2220
Purchase, 1/15/2017		180		$6.5		1170
Purchase, 1/28/2017		180		$6.7		1206

Total Purchases = 2220 + 1170 + 1206 = $4,596

Valuation on inventory at year end

Since the company uses FIFO method and periodic inventory system, therefore the closing stock of 290 units will be valued as follows:

180 units * $6.7 = 1,206

110 units * $6.5 = 715

Value of closing Inventory = 1,921

No of units sold (Units)

= Opening Balance + Purchases – Closing stock

= 370 + (180+180) – 290

= 440 units

Sales = 440 units * $12 = $5,280

Cost of goods sold ($)

= Opening Stock + Purchases – Closing stock

= 2,220 + 1,170 – 1,921

= 1,469

Gross Profit for the month

= Sales - Cost of goods sold

= 5,280 – 1,469

= 3,811