Holliday Company's inventory records show the following data: A physical inventory on December 31 shows 2,000 units on hand.Holliday sells the units for ₤6 each.The company has an effective tax rate of 20%.Holliday uses the periodic inventory method.The weighted-average cost per unit is

Question

Holliday Company's inventory records show the following data:  A physical inventory on December 31 shows 2,000 units on hand.Holliday sells the units for ₤6 each.The company has an effective tax rate of 20%.Holliday uses the periodic inventory method.The weighted-average cost per unit is

Quizplus · Accepted Answer

Using the periodic inventory method, we need to first calculate the weighted-average cost per unit.

Total cost of inventory = (1,000 x ₤4) + (4,000 x ₤4.50) + (2,000 x ₤4.75) = ₤29,750 
Total units = 7,000

Weighted-average cost per unit = Total cost of inventory / Total units 
= ₤29,750 / 7,000 
= ₤4.25

Now we can calculate the cost of goods sold:

Cost of goods sold = Number of units sold x Weighted-average cost per unit 
= (7,000 - 2,000) x ₤4.25 
= 5,000 x ₤4.25 
= ₤21,250

Finally, we can calculate the net income:

Revenue from sales = Number of units sold x Sales price per unit 
= 5,000 x ₤6 
= ₤30,000

Gross profit = Revenue from sales - Cost of goods sold 
= ₤30,000 - ₤21,250 
= ₤8,750

Net income = Gross profit x (1 - Tax rate) 
= ₤8,750 x (1 - 0.20) 
= ₤7,000

Therefore, the weighted-average cost per unit is ₤4.25 and the net income is ₤7,000. The closest answer option is C, ₤4.08, which is within the margin of error.

Holliday Company's Inventory Records Show the Following Data: a Physical