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Chapter 6: Q34PGB_6 (page 370)

Steel It began January with 55 units of iron inventory that cost \(35 each. During January, the company completed the following inventory transactions:

Units Unit Cost Unit Sales Price

Jan. 3 Sale 45 \) 83

8 Purchase 75 $ 52

21 Sale 70 85

30 Purchase 10 55

Requirements

6. If the business wanted to maximize gross profit, which method would it select?

Short Answer

Expert verified

Under the FIFO method, the gross profit would be highest.

Step by step solution

01

Gross profit

Gross profit is the profit before operating expenses. It is the difference between the revenue and the direct expenses incurred. The direct expense includes material costs and labor costs.

02

Maximum gross profit

The gross profit under all the given methods has been computed in the previous sub-section. The maximum gross profit comes under the FIFO method, $4,640. This is so because the COGS has been computed for the older prices against the higher current market costs.

Thus the gross profit would be higher if the COGS had been valued at lower prices.

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Most popular questions from this chapter

Discuss the materiality concept. Is the dollar amount that is material the same for a company that has annual sales of \(10,000 compared with a company that has annual sales of \)1,000,000?

Question:Boston Cycles started October with 12 bicycles that cost \(42 each. On October 16, Boston bought 40 bicycles at \)68 each. On October 31, Boston sold 34 bicycles for$100 each.

Preparing a perpetual inventory record and journal entries— Weighted-average

Requirements

2. Journalize the October 16 purchase of merchandise inventory on the account and theOctober 31 sale of merchandise inventory on the account.

Question:Golf Unlimited carries an inventory of putters and other golf clubs. The sales price of each putter is \(119. Company records indicate the following for a particular line ofGolf Unlimited’s putters:

Date Item Quantity Unit Cost

Nov. 1 Balance 24 \) 53

6 Sale 20

8 Purchase 30 70

17 Sale 30

30 Sale 2

Requirements

1. Prepare a perpetual inventory record for the putters assuming Golf Unlimited usesthe FIFO inventory costing method. Then identify the cost of ending inventoryand cost of goods sold for the month.

Question:Refer to Short Exercises S6-4 through S6-6. After completing those exercises, answer the following questions:

Requirements

1. Which inventory costing method produced the lowest cost of goods sold?

How is inventory turnover calculated, and what does it measure?
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