AOTD Inc. had beginning inventory of 5,700 that cost $4.00 each. It purchased an additional 4,000 units for $6.00 during the period. AOTD Inc. then sold 4,400 units for $18. If the company recognized gross profit of $51,000 on the sale, what inventory method is AOTD Inc. using? (A 14)
LIFO |
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FIFO |
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Weighted Average |
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There is not enough information to answer this question. |
Correct Answer:
Option: There is not enough information to answer this question.
Working:
Gross profit = $ 51,000
Sales Revenues = $ 79,200 (4,400 units * $ 18)
Cost of goods sold = Sales revenue – Gross profit.
Cost of goods sold = $ 28,200
We need $ 28,200 of cost of goods sold, in order to earn a gross profit of $ 51,000
Therefore, whichever method is resulting in cost of goods sold equal to $ 28,200, AOTD Inc. must be using that method.
But no method is giving cost of goods sold equal to $ 28,200
FIFO |
||||||
Cost of Goods Sold |
4400 |
* |
$ 4.00 |
= |
$ 17,600 |
LIFO |
||||||
Cost of Goods Sold |
4000 |
* |
$ 6.00 |
= |
$ 24,000 |
|
400 |
* |
$ 4.00 |
= |
$ 1,600 |
||
Total Cost of Goods Sold |
4400 |
units |
$ 25,600 |
Weighted Average Cost Per unit |
|||
Units |
(A) |
9700 |
|
Total Cost |
(B) |
$ 46,800 |
|
Average Cost |
(C=B/A) |
$ 4.82 |
Average cost |
||||||
Cost of Goods Sold |
4400 |
* |
$ 4.82 |
= |
$ 21,229 |
End of answer.
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