A company just starting in business purchased three merchandise inventory items at the following prices.March 2, $75; March 7, $80; and March 15, $90.If the company sold two units for $125 each on March 10 and March 20, and used the FIFO cost formula in a perpetual inventory system, the gross profit for March would be
A)$100.
B)$95.
C)$90.
D)$75.

Question

Quizplus · Accepted Answer

Using the FIFO (First-in, First-out) method, we assume that the first two units sold were from the inventory purchased on March 2 and March 7 (at $75 and $80, respectively).

Cost of goods sold for the two units = $75 + $80 = $155

Revenue from the two units = 2 x $125 = $250

Gross profit = revenue - cost of goods sold = $250 - $155 = $95.

Therefore, the gross profit for March would be $95.

A Company Just Starting in Business Purchased Three Merchandise Inventory