A company just starting in business purchased three merchandise inventory items at the following prices.First purchase $80; Second purchase $95; Third purchase $85.If the company sold two units for a total of $270 and used FIFO costing, the gross profit for the period would be
A)$95.
B)$105.
C)$90.
D)$80.

Question

Quizplus · Accepted Answer

FIFO (first-in, first-out) costing assumes that the first items purchased are the first items sold. Therefore, the first two units sold would be from the first purchase at $80 each, resulting in a gross profit of $270 - (2 x $80) = $110. However, the question states that the gross profit is $95, so there must be an error in the question or the answer choices.

A Company Just Starting in Business Purchased Three Merchandise Inventory