Romanoff Industries had the following inventory transactions occur during 2018: The company sold 150 units at $70 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company's gross profit using FIFO? (rounded to whole dollars)

Question

Romanoff Industries had the following inventory transactions occur during 2018:  The company sold 150 units at $70 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company's gross profit using FIFO? (rounded to whole dollars)

Quizplus · Accepted Answer

To calculate the company's gross profit using FIFO, we need to first determine the cost of goods sold (COGS) and then subtract it from the total revenue.

To calculate the COGS using FIFO, we assume that the items sold are from the earliest inventory purchases, as if they were the first in and first out.

The first inventory purchase of 100 units @ $35 = $3,500.
The Second inventory purchase of 200 units @ $40  = $8,000.
The Third inventory purchase of 300 units @ $45 = $13,500.

Therefore, the COGS for the 150 units sold at $70 would be:
COGS for the first 100 units = 100 x $35 = $3,500
COGS for the remaining 50 units (from the second inventory purchase) = 50 x $40 = $2,000
Total COGS = $5,500

Gross profit = Revenue - COGS
Revenue = 150 x $70 = $10,500
Gross profit = $10,500 - $5,500 = $5,000

But gross profit is before taxes. 
Net profit (after-tax profit) = Gross profit x (1 - Tax rate) 
Net profit = $5,000 x (1-0.30) = $3,500

Therefore, the correct answer is B ($3,552 rounded to the nearest dollar).

Romanoff Industries Had the Following Inventory Transactions Occur During 2018