Question

The Bradley Corporation produces a product with the following costs as of July 1, 20X1:

Material	$4 per unit
Labor	2 per unit
Overhead	2 per unit

Beginning inventory at these costs on July 1 was 3,150 units. From July 1 to December 1, 20X1, Bradley Corporation produced 12,300 units. These units had a material cost of $4, labor of $6, and overhead of $3 per unit. Bradley uses LIFO inventory accounting.

a. Assuming that Bradley Corporation sold 13,600 units during the last six months of the year at $18 each, what is its gross profit?
  

b. What is the value of ending inventory?

Answer 1

Beginning inventory cost per unit = Material+Labor+Overhead

= 4+2+2

= $8

Beginning inventory = 3,150 units

Production during July 1 to December 1 = 12,300 units

Cost per unit of inventory produced from July 1 to December 1 = Material+Labor+Overhead

= 4+6+3

= $13

(a) Number of units sold during July to December 1 = 13,600

Using LIFO, these 13,600 units sold would comprise of 12,300 units produced during July to December and 1,300 units from the beginning inventory.

Calculation of cost of goods sold

Date	Units	Unit Cost	Total Cost
Jul-01	1,300	8	10,400
July 1 to July 31	12,300	13	159,900
Total	13,600		170,300

Cost of goods sold = $170,300

Sales revenue = Number of units sold x Selling price per unit

= 13,600 x 18

= $244,800

Gross profit = Sales revenue - Cost of good sold

= 244,800-170,300

= $74,500

(b)

Ending inventory = Beginning inventory + Number of units produced - Number of units sold

= 3,150+12,300-13,600

= 1,850 units

Value of ending inventory =  Ending inventory x Cost per unit

= 1,850 x 8

= $14,800