A company just starting in business purchased three merchandise inventory items at the following prices. First purchase $80; Second purchase $95; Third purchase $85. If the company sold two units for a total of $240 and used FIFO costing, the gross profit for the period would be

Question

Quizplus · Accepted Answer

FIFO (First-In, First-Out) costing assumes that the first items purchased are the first items sold. In this case, the company purchased three items at prices of $80, $95, and $85. The company then sold two units for a total of $240. Using FIFO costing, the cost of goods sold would be the cost of the first two items purchased, which is $80 + $95 = $175. The gross profit would then be $240 - $175 = $65.

A Company Just Starting in Business Purchased Three Merchandise Inventory