Nicholas Industries had the following inventory transactions occur during 2022: $\begin{array}{llll}&&\text {Units}&\text { Cost/unit}\\hline
2 / 1 / 22 & \text { Purchase } & 54 & \$ 45 \
3 / 14 / 22 & \text { Purchase } & 93 & \$ 47 \
5 / 1 / 22 & \text { Purchase } & 66 & \$ 49
\end{array}$ The company sold 140 units at $65 each. Assuming that a periodic inventory system is used, what is the company's gross profit using FIFO?

Question

Quizplus · Accepted Answer

To calculate the gross profit using FIFO (first-in, first-out) method, we need to assume that the first units purchased are the first ones sold. Therefore, we need to use the cost of the oldest units in inventory to calculate the cost of goods sold.

First, let's calculate the cost of goods sold:
- The company sold 140 units, so we need to use the cost of the first 140 units purchased.
- The company purchased 100 units at $50 each, for a total of $5,000.
- The company purchased another 200 units at $55 each, for a total of $11,000.
- Therefore, the cost of the first 140 units sold is:

100 units x $50 = $5,000
40 units x $55 = $2,200
Total cost of goods sold = $7,200

Now, let's calculate the gross profit:
- The company sold 140 units at $65 each, for a total of $9,100 in revenue.
- The cost of goods sold is $7,200 (as calculated above).
- Therefore, the gross profit is:

Revenue - cost of goods sold = $9,100 - $7,200 = $1,900

Therefore, the answer is B.

Nicholas Industries Had the Following Inventory Transactions Occur During 2022