A corporation produces a product with the following costs as of July 1, 2011: Ma

Question

A corporation produces a product with the following costs as of July 1, 2011: Material ($2 per unit), Labor ($4 per units), Overhead ($2 per units). Beginning inventory at these costs on July 1 was 3,000 units. From July 1 to December 1, 2011, this company produced 12,000 units. These units had a material cost of $3, labor of $5, and overhead of $3 per units. This company uses FIFO inventory accounting. Assuming that the company 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? What's the Old inventory units in quantity and cost, as well as the new inventory quantity and cost. What's the sales?

Explanation / Answer

Cost of units in the inventory= 3000(2+4+2)= $24000

Cost of additional 12000 units= 12000(3+5+3)=$132000

Amount earned in selling 13000units @$16= $208000

Gross Profit earned= 208000-(24000+(10000x11)) = $74000......ans

Value of ending inventory= 2000x11= $22000..........ans

Note: if we use the selling price the inventory value would be higher at $32000 but we will not use this value since it is higher than the one obtained using cost price.

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