Cast Iron Grills, Inc., manufactures premium gas barbecue grills. The company us

Question

Cast Iron Grills, Inc., manufactures premium gas barbecue grills. The company uses a periodic inventory system and the LIFO cost method for its grill inventory. Cast Iron's December 31, 2018, fiscal year-end inventory consisted of the following (listed in chronological order of acquisition):

The replacement cost of the grills throughout 2019 was $1,200. Cast Iron sold 41,000 grills during 2019. The company's selling price is set at 200% of the current replacement cost.

Required:
1. & 2. Compute the gross profit (sales minus cost of goods sold) and the gross profit ratio for 2019 under two different assumptions. First, that Cast Iron purchased 42,000 units and, second, that Cast Iron purchased 22,000 units during the year.
4. Compute the gross profit (sales minus cost of goods sold) and the gross profit ratio for 2019 assuming that Cast Iron purchased 42,000 units (as per the first assumption) and 22,000 units (as per the second assumption) during the year and uses the FIFO inventory cost method rather than the LIFO method.
  

Units Unit Cost 7,800 $ 900 5,400 1,000 8,800 1,100

Explanation / Answer

(1 & 2) LIFO :-

First Assumption:-(Purchased 42000 units)

SP = 1200 * 200% = 2400

Sales (41000 * 2400)

98400000

(-) COGS (41000 * 1200)

49200000

Gross Profit

49200000

Gross Profit Ratio (GP/Sales)*100

50%

Second Assumption:-(Purchased 22000 units)

Sales (41000 * 2400)

98400000

(-) COGS (22000 * 1200) + (8800 * 1100) + (5400 * 1000) + (4800 * 900)

45800000

Gross Profit

52600000

Gross Profit Ratio (GP/Sales)*100

53.46%

(4) FIFO :-

First Assumption:-(Purchased 42000 units)

SP = 1200 * 200% = 2400

Sales (41000 * 2400)

98400000

(-) COGS (7800 * 900) + (5400 * 1000) + (8800 * 1100) + (19000 * 1200)

22800000

Gross Profit

75600000

Gross Profit Ratio (GP/Sales)*100

76.83%

Second Assumption:-(Purchased 22000 units)

Sales (41000 * 2400)

98400000

(-) COGS (7800 * 900) + (5400 * 1000) + (8800 * 1100) + (19000 * 1200)

22800000

Gross Profit

75600000

Gross Profit Ratio (GP/Sales)*100

76.83%

Sales (41000 * 2400)

98400000

(-) COGS (41000 * 1200)

49200000

Gross Profit

49200000

Gross Profit Ratio (GP/Sales)*100

50%

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