Levy's Used Cars uses the specific identification method of costing inventory. During March, Levy purchased three cars for $5,000, $6,500, and $8,000, respectively. During March, the first two cars are sold for $7,500 each. What is Levy's gross profit for March?
A) $2,000
B) $3,500
C) $500
D) $7,000

Question

Quizplus · Accepted Answer

The gross profit is calculated by subtracting the cost of goods sold (COGS) from the sales revenue. The first two cars, purchased for $5,000 and $6,500, are sold for $7,500 each. Thus, the total sales revenue is $15,000 ($7,500 x 2). The COGS is the sum of the purchase prices of the first two cars, which is $11,500 ($5,000 + $6,500). Therefore, the gross profit is $15,000 - $11,500 = $3,500.

Levy's Used Cars Uses the Specific Identification Method of Costing