Milford Company had 500 units of "Tank" in its inventory at a cost of $4 each. It purchased, for $2,800, 300 more units of "Tank". Milford then sold 400 units at a selling price of $10 each, resulting in a gross profit of $1,600. The cost flow assumption used by Milford

Question

Quizplus · Accepted Answer

Under the weighted average cost flow assumption, the cost of goods sold is calculated as the weighted average of the cost per unit of all the units available for sale (in this case, the initial 500 units costing $4 each and the additional 300 units costing $2,800 / 300 = $9.33 each). Therefore, the cost of goods sold for the 400 units sold would be (500*$4 + 300*$9.33) / 800 = $6.25 per unit. Since the selling price was $10 per unit, the gross profit would be $10 - $6.25 = $3.75 per unit, resulting in a total gross profit of $1,600.

Milford Company Had 500 Units of "Tank" in Its Inventory