The Divine Merchandising Corporation began March operations with merchandise inv

Question

The Divine Merchandising Corporation began March operations with merchandise inventory of 6 units, each of which cost $27. During March, Divine Merchandising made the following purchases: (1) March 4, 12 units @ $28 per unit, (2) March 15, 18 units @ $30 per unit, (3) March 26, 14 units @ $32 per unit. During March the Divine Merchandising Company sold the following units at a sales price of $48 per unit: March 6, 11 units, March 20, 17 units, and March 28, 12 units. Operating expenses in March were $640. The Company estimates its income taxes expense will be approximately 35% of income before taxes.

Using the LIFO perpetual inventory method, determine the gross profit for March.

$718

$3,122

$1,486

$1,202

$1,920

$718

$3,122

$1,486

$1,202

$1,920

Explanation / Answer

LIFO means that the sales will be made from the last purchase made.

The sale of March 6 will be made from the purchases of March 4, March 20 sales would be from March 15 purchases and March 28 sales would be from March 26 purchases.

Gross profit = Sales - purchases

= 48 * (11+17+12) - ((11 * 28) + (17 * 30) + (12 * 32))

= $718

The correct answer is a. $718

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