A company just starting in business purchased three merchandise inventory items at the following prices. First purchase $64; Second purchase $76; Third purchase $68. If the company sold two units for a total of $200 and used FIFO costing, the gross profit for the period would be
A) $56.
B) $60.
C) $62.
D) $68.

Question

Quizplus · Accepted Answer

Using FIFO costing method, we assume that the first goods purchased are the first ones sold. The inventory cost for the first two units sold would be:

First purchase: $64 x 1 unit = $64
Second purchase: $76 x 1 unit = $76

Total cost of goods sold (COGS) = $64 + $76 = $140

The revenue from the sale of two units is $200.

Therefore, the gross profit for the period would be:

Gross profit = Revenue - COGS
Gross profit = $200 - $140 = $60

Hence, the correct answer is B.

A Company Just Starting in Business Purchased Three Merchandise Inventory