Effie Company uses a periodic inventory system. Details for the inventory account for the month of January, 2018 are as follows: An end of the month (1/31/18) inventory showed that 160 units were on hand. If the company uses FIFO and sells the units for $10 each, what is the gross profit for the month?
A) $1,120
B) $1,188
C) $1,532
D) $1,600

Question

Effie Company uses a periodic inventory system. Details for the inventory account for the month of January, 2018 are as follows:  An end of the month (1/31/18) inventory showed that 160 units were on hand. If the company uses FIFO and sells the units for $10 each, what is the gross profit for the month?
A) $1,120 
B) $1,188 
C) $1,532 
D) $1,600

Quizplus · Accepted Answer

To calculate the cost of goods sold (COGS) using FIFO, we need to assume that the first 500 units were purchased at the beginning of the month (1/1/18), the next 400 were purchased on 1/15/18, and the remaining 200 units were purchased on 1/25/18. Therefore, we have:

COGS = (500 x $4) + (400 x $6) + (40 x $8)

COGS = $2,000 + $2,400 + $320

COGS = $4,720

Gross profit = revenue - COGS

Gross profit = (660 x $10) - $4,720

Gross profit = $6,600 - $4,720

Gross profit = $1,880

Therefore, the gross profit for the month of January using FIFO is $1,880, which corresponds to choice letter B.

Effie Company Uses a Periodic Inventory System