Use the following information to answer the following questions. The Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1.
Assuming that the company uses the perpetual inventory system, determine the gross profit for the sale of May 23 using the FIFO inventory cost method.
A) $78
B) $90
C) $102
D) $180

Question

Use the following information to answer the following questions. The Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1.
 Assuming that the company uses the perpetual inventory system, determine the gross profit for the sale of May 23 using the FIFO inventory cost method.
A) $78 
B) $90 
C) $102 
D) $180

Quizplus · Accepted Answer

Using the FIFO method, we assume that the first units purchased are the first units sold. Therefore, the cost of goods sold for May 23 will be the cost of the last units purchased on May 21 ($42 each) plus the cost of the first units purchased on May 22 ($36 each), for a total cost of $78 per blanket.

Gross profit is calculated by subtracting the cost of goods sold from the selling price, which gives:

$60 selling price - $78 cost of goods sold = -$18

Since the result is negative, we know that the company made a loss on the sale, and the answer is A, $78.

Use the Following Information to Answer the Following Questions