6 A company acquired two inventory items at a lump-sum cost of $50,000. The acqu

Question

6

A company acquired two inventory items at a lump-sum cost of $50,000. The acquisition included 3,000 units of LF and 7,000 units of RT. LF normally sells for $15 per unit, and RT normally sells for $5 per unit. If the company sells 1,000 units of LF, what amount of gross profit would be reported using the relative sales value method? CARRY COST PER UNIT TO THREE DECIMAL PLACES.

$9,375

Assume the following: Beginning Inventory = $125,000 Purchases = $300,000 Sales = $500,000 Gross Profit Rate = 25% Using the gross profit method, what is the value of the ending inventory assuming gross profit is 25% of cost?

$125,000

Assume the following: Beginning Inventory = $125,000 Purchases = $300,000 Sales = $500,000 Gross Profit Rate = 25% Using the gross profit method, what is the value of the ending inventory assuming gross profit is 25% of sales?

Explanation / Answer

Ans)

6) Option (D) 5625

Sales value of LF = 3000 X 15 = 45,000

Sales Value of RT = 7000 X 5 = 35,000

80.000

Weight of LF = 45000 / 80,000 = 0.5625

Cost allocated to LF = 50,000 X 0.5625 = 28125

Unit cost of LF = 28125 / 3000 = 9.375

Gross profit = Sales - COGS

= (1000 X 15 ) - (1000 X 9.375)

= 15000 - 9375 = 5625

7) Option (A) $25,000

Gross profit 25% On Cost = 20% on sales

COGS = Sales - Gross profit

= 500,000 - (500,000 X 20%)

= 500,000 - 100,000

= 400,000

Ending inventory = OPening stock + purchases - COGS

= 125,000 + 300,000 - 400,000

= 25000

8) OPtion (B) 50,000

Gross profit = 25% on Sales

COGS = Sales - Gross profit

= 500,000 - (500,000 X 25%)

= 500,000 - 125,000

= 375,000

Ending inventory = Opening stock + purchases - COGS

= 125,000 + 300,000 - 375,000

= 50,000

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