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Beginning inventory all these costs on July 1 was 3,000 units. From July 1 to December
1, 2011, Bradley produced 12,000 units. These units had a material cost of $3 per unit, labor of
$5, and overhead of $3 per unit. Bradley uses FIFO inventory accounting.
Assuming that Bradley sold 13,000 units during the last six months of the year at $16
each, what is its gross profit? What is the value of ending inventory?
Solution:
Determination of Gross Profit:
Bradley Corporation
Accounts USD USD
Sales (13,000 x $ 16) ………………………………………………………….. $ 208,000
Cost of goods sold:
Old inventory
Quantity (units) …………………………………. 3,000
Cost per unit ($ 2 + $ 4 + $ 2) …………………... $8
Total (3,000 x $ 8) ……………………………………..……… $ 24,000
New inventory
Quantity (units) (13,000 – 3,000) ………………. 10,000
Cost per unit ($ 3 + $ 5 + $ 3) ………………….. $11
Total (10,000 x $ 11) ………………………………………….. $ 110,000
Total cost of goods sold………………………………………... $ 134,000
Gross Profit ……………………………………………………………………. $ 74,000
Solution:
Determination of Gross Profit:
Bradley Corporation
Accounts USD USD
Sales (13,000 x $ 16) ………………………………………………………….. $ 208,000
Cost of goods sold:
New inventory
Quantity (units) …………………………………. 12,000
Cost per unit ($ 3 + $ 5 + $ 3) …………………... $ 11
Total (12,000 x $ 11) ……………………………………..…… $ 132,000
Old inventory
Quantity (units) (13,000 – 12,000) ……………… 1,000
Cost per unit ($ 2 + $ 4 + $ 2) …………………... $8
Total (1,000 x $ 8) ………………………………………..….... $ 8,000
Total cost of goods sold………………………………………... $ 140,000
Gross Profit ……………………………………………………………………. $ 68,000