The Bradley Corporation produces a product with the following costs as of July 1

Question

The Bradley Corporation produces a product with the following costs as of July 1, 20X1:

Beginning inventory at these costs on July 1 was 3,350 units. From July 1 to December 1, 20X1, Bradley produced 12,700 units. These units had a material cost of $2, labor of $4, and overhead of $2 per unit. Bradley uses LIFO inventory accounting.

a. Assuming that Bradley sold 14,400 units during the last six months of the year at $13 each, what is its gross profit?
  

b. What is the value of ending inventory?
  

Explanation / Answer

a. Gross Profit = Sales - Cost of Goods Sold

Gross Profit = 14400 * $13 - (12700 * $8 + $1700 * $7)

Gross Profit = 14400 * $13 - $113500

Gross Profit = $73700

*Cost = Direct Material + Direct labor + Overhead

b. Value of Ending Inventory = (Opening Inventory - Units Sold) * $7

Value of Ending Inventory = (3350 - 1700) * $7

Value of Ending Inventory = $11550

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