5. Wonderland Company imports and sells a product produced in Canada. In the sum
ID: 2340542 • Letter: 5
Question
5. Wonderland Company imports and sells a product produced in Canada. In the summer of 2016, a
natural disaster disrupted production, affecting its supply of product. On January 1, 2016, Wonderland’s
inventory records were as follows:
Year purchased
Quantity (units)
Cost per unit
Total cost
2014
4,000
$160
$ 640,000
2015
10,000
$220
2,220,000
Total
14,000
$2,840,000
Through mid-December of 2016, purchases were limited to16,000 units, because the cost had increased
to $320 per unit. Wonderland sold 18,400 units during 2016 at a price of $392 per unit, which significantly
depleted its inventory.
Assume that Wonderland makes no further purchases during 2016. Wonderland uses the LIFO inventory
method.
Compute Wonderland’s gross profit for 2016.
Explanation / Answer
Answer:
1
As per requirement in given in the question here we assume that Wonderland uses the LIFO inventory;
calculation if the Wonderland’s gross profit for 2016.
Sales revenue ( 18,400 x $392 )
7212800
Less:
Cost of goods sold (w.N-1)
5,648,000
Gross profit
1,564,800
Wonderland’s gross profit for 2016 =1,564,800
___________________________________________________
w.N-1
calculation of the Cost of goods sold as per LIFO
Units
Price
Total
A
`B
C=A*B
Sales from 2016 purchased
16000
320
5120000
Sales from 2015 purchased (18400-16000)
2400
220
528000
5648000
Sales revenue ( 18,400 x $392 )
7212800
Less:
Cost of goods sold (w.N-1)
5,648,000
Gross profit
1,564,800
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