Graham Company uses a periodic inventory system.Details for the inventory account for the month of January, 2011 are as follows:
$\begin{array}{llrr}&\text { Units } &\text { Per unit price }&\text { Total }\
\text { Balance, } 1 / 1 / 11 & 300 & \$ 5.00 & \$ 1500 \
\text { Purchase, } 1 / 15 / 11 & 150 & 5.30 & 795 \
\text { Purchase, } 1 / 28 / 11 & 150 & 5.50 & 825
\end{array}$

An end of the month (1/31/11) inventory showed that 180 units were on hand.If the company uses FIFO and sells the units for $10 each, what is the gross profit for the month?

Question

Graham Company uses a periodic inventory system.Details for the inventory account for the month of January, 2011 are as follows: 
$\begin{array}{llrr}&\text { Units } &\text { Per unit price }&\text { Total }\
\text { Balance, } 1 / 1 / 11 & 300 & \$ 5.00 & \$ 1500 \
\text { Purchase, } 1 / 15 / 11 & 150 & 5.30 & 795 \
\text { Purchase, } 1 / 28 / 11 & 150 & 5.50 & 825
\end{array}$

An end of the month (1/31/11) inventory showed that 180 units were on hand.If the company uses FIFO and sells the units for $10 each, what is the gross profit for the month?

Quizplus · Accepted Answer

FIFO (First-In, First-Out) assumes that the first units purchased are the first units sold. Therefore, the cost of goods sold for January is:300 units @ $5.00 = $1,500150 units @ $5.30 = $795Total cost of goods sold = $2,295Gross profit is sales revenue minus cost of goods sold. Sales revenue is:180 units @ $10.00 = $1,800Therefore, gross profit is:$1,800 - $2,295 = $2,064

Graham Company Uses a Periodic Inventory System An End of the Month (1/31/11) Inventory Showed That 180