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In the year 1989 a trading firm bought 400 baseball bats for $60 each and sold...

  1. In the year 1989 a trading firm bought 400 baseball bats for $60 each and sold 300 of them for $80 each. What was the firm’s profit or loss. Explain your calculation.
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Answer #1

Calculation of firm's profit in the year 1989:

= (Sale price - purchase price) x no. of units sold

= ($80 - $ 60) x 300

= $20 x 300

= $6000 (Answer)

Explanation: Profit on sale is the differential amount  of total revenue and total cost. Further, profit is always calculated for the number of items sold during the period under consideration and the remaining unsold quantity is considered as inventory, which forms part of balance sheet.

In the given case, the total units of basketball sold during the given period is 300 and the profit per unit of basketball is $20 (i.e. $80 - $60). Accordingly, the firm has earned total profit of $6000. And, the remaining unsold units of baseball, having cost of $6000, will be shown as asset (inventory) in the balance sheet of the firm.

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