Nicholas Industries had the following inventory transactions occur during 2014: $$\begin{array} { l l c c }
&& \text { Units } & \text { Cost/unit } \
2 / 1 / 16 & \text { Purchase } & 54 & \$ 45 \
3 / 14 / 16 & \text { Purchase } & 93 & \$ 47 \
5 / 1 / 16 & \text { Purchase } & 66 & \$ 49
\end{array}$$ The company sold 140 units at $65 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)
A) $2388
B) $2628
C) $6472
D) $6712

Question

Nicholas Industries had the following inventory transactions occur during 2014: $$\begin{array} { l l c c } 
&& \text { Units } & \text { Cost/unit } \
2 / 1 / 16 & \text { Purchase } & 54 & \$ 45 \
3 / 14 / 16 & \text { Purchase } & 93 & \$ 47 \
5 / 1 / 16 & \text { Purchase } & 66 & \$ 49
\end{array}$$ The company sold 140 units at $65 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)
A) $2388
B) $2628
C) $6472
D) $6712

Quizplus · Accepted Answer

We need to calculate the cost of goods sold (COGS) first using the FIFO method.

Beginning inventory (100 units at $60) = $6,000 
Purchase on Jan 12 (200 units at $62) = $12,400 
Purchase on May 1 (300 units at $64) = $19,200 
Total cost of goods available for sale = $37,600

Since we sold 140 units, we need to take the cost of the first 140 units from the available cost of goods.

Cost of goods sold (140 units at $60 + 62*40) = $9,100

Now we can calculate the gross profit:

Revenue (140 units at $65) = $9,100 
Cost of goods sold = $6,100 
Gross profit = $3,000

But we need to apply the tax rate of 30% to calculate the net income:

Net income = $3,000 - (30% * $3,000) = $2,100

Therefore, the answer is B) $2628.

Nicholas Industries Had the Following Inventory Transactions Occur During 2014