Question

Cast Iron Grills, Inc., manufactures premium gas barbecue grills. The company uses a periodic inventory system and the LIFO cost method for its grill inventory. Cast Iron's December 31, 2018, fiscal year-end inventory consisted of the following (listed in chronological order of acquisition):

Units	Unit Cost
8,200	$	700
5,600		800
9,200		900

The replacement cost of the grills throughout 2019 was $1,000. Cast Iron sold 43,000 grills during 2019. The company's selling price is set at 200% of the current replacement cost.

Required:
1. & 2. Compute the gross profit (sales minus cost of goods sold) and the gross profit ratio for 2019 under two different assumptions. First, that Cast Iron purchased 44,000 units and, second, that Cast Iron purchased 23,000 units during the year.
4. Compute the gross profit (sales minus cost of goods sold) and the gross profit ratio for 2019 assuming that Cast Iron purchased 44,000 units (as per the first assumption) and 23,000 units (as per the second assumption) during the year and uses the FIFO inventory cost method rather than the LIFO method.

Answer 1

1&2. assume that co. purchased 44000 units-

gross profit = 1000*43000 = 43000000

gross profit margin = 43000000/86000000*100 = 50%

assume that co. purchased 23000 units-

gross profit = 1000*23000 + (2000-900)*9200 + (2000-800)*5600 + (2000-700)*5200

= 46600000

sales = 43000*2000 = 86000000

gross profit margin = 46600000/86000000*100 = 54.19%

4.

assume that co. purchased 44000 units-(FIFO)

gross profit = 1000*20000 + (2000-900)*9200 + (2000-800)*5600 + (2000-700)*8200

= 47500000

gross profit margin = 47500000/86000000*100 = 55.23%

assume that co. purchased 23000 units-(FIFO)

gross profit = 1000*20000 + (2000-900)*9200 + (2000-800)*5600 + (2000-700)*8200

= 47500000

gross profit margin = 47500000/86000000*100 = 55.23%

(ANWER IS SAME UNDER BOTH ASSUMPTION WHILE USING FIFO METHOD