Gross profit and ending inventory (LO2) Barter’s Supplies produces a product with the following costs as of July 1, 2021:
Material……………………. $ x
Labor……………………….. x
Overhead………………….. x
$xx
Beginning inventory at these costs on July 1 was 5,000 units. From July 1 to December 1, Convex produced 16,000 units. These units had a material cost of $10 per unit. The costs for labor and overhead were the same. Barter’s uses FIFO inventory accounting.
Assuming that Barter’s sold 18,000 units during the last six months of the year at $22 each, what
would gross profit be? What is the value of ending inventory?
Initial production cost = $xx
New production cost =$x+$x+$x=$xx
xx, xxx units were to be sold at $xx generating total revenue of $ xxx, xxx
However, of the xx, xxx units, x, xxx units are from the beginning of the inventory sold at $xx and
xx, xxx units sold at $xx and the remaining x, xxx sold at $xx
Therefore, the total cost of sold units is (x, xxx×$xx)+(xx, xxx×$xx)+(x, xxx×$xx)
=($ xx,xxx)+($ xxx, xxx)+($ xx, xxx)
=$ xxx, xxx
Gross profit=$ xxx, xxx-$ xxx, xxx
=$ xxx, xxx
Value of ending inventory
=xxx+xxx-(xxx)
={($ xx, xxx+$ xxx, xxx)+$ xxx, xxx}-$ xxx, xxx
=$ xxx, xxx
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