Question

On January 1, 2016 Oxford Company had 3,500 units in inventory at a cost of $9 per unit.  During 2016 Oxford company purchased 3,000 units (Lot #1 - the first units purchased during the year) at a cost of $9.50 per unit, 4,000 units (Lot #2) at a cost of $10.50 per unit and 2,500 units (Lot #3) at a cost of $10 per unit.  The company sold 8,700 units during 2016 at a sales price of $12.25 per unit.  If Oxford Company uses a periodic inventory system and the first-in-first-out (FIFO) method, then what is the company's gross profit for 2016?

Answer 1

	Units	Unit cost	Total cost
Beginning inventory	3500	9	31500
Purchase (Lot #1)	3000	9.50	28500
Purchase (Lot #2)	4000	10.50	42000
Purchase (Lot #3)	2500	10	25000
Total goods avaliable	13000		127000

Ending inventory units = Total units available - Sales unit = 13000 - 8700 =	4300
First-in, first-out (FIFO) : In this method those goods are sold first which are purchased first and the ending inventory is from the latest purchases.
Cost of ending inventory = (2500*10) + (1800*10.50) =	43900
Cost of goods sold = Cost of goods available - Cost of ending inventory = 127000 - 43900 =	83100

Sales ( 8700*12.25 )	106575
(-) Cost of goods sold	83100
Gross profit	23475