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

Question

The Bradley Corporation produces a product with the following cost as of July 1, 2011: material($2 per unit), labor($4 per unit), overhead($2 per unit) Beginning inventory at theses costs on July 1 was 3,000 units. From July 1 to December 1, 2011, Bradley produced 12,000 units. Theses units had a material cost of $ 3, labor of $ 5, and overhead of $ 3 per unit. Bradley uses FIFO inventory accounting. Assuming that Bradley sold 13,000 units durning the last six months of the year at $ 16 each, what is its gross profit? What is the value of ending inventory?

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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