Ted's Used Cars uses the specific identification method of costing inventory. During March, Ted purchased three cars for $8,000, $10,000, and $13,000, respectively. During March, two cars are sold for $11,000 each. Ted determines that at March 31, the $13,000 car is still on hand. What is Ted's gross profit for March?
A) $3,000.
B) $4,000.
C) $1,000.
D) $9,000.

Question

Quizplus · Accepted Answer

With specific identification method, the cost of goods sold is based on the specific cost of the items sold, and the cost of inventory on hand is based on the specific cost of the items remaining in inventory. Therefore, the cost of goods sold for March is $18,000 (the cost of the two cars sold), and the cost of the car remaining in inventory is $13,000. The total revenue for the two cars sold is $22,000 ($11,000 per car), which results in a gross profit of $4,000 ($22,000 - $18,000 - $13,000 = $4,000).

Ted's Used Cars Uses the Specific Identification Method of Costing