The Bradley Corporation produces a product with the followin

The Bradley Corporation produces a product with the following costs as of July 1, 20X1:

The Bradley Corporation produces a product with the following costs as of July 1, 20X1:

Beginning inventory at these costs on July 1 was 3,250 units. From July 1 to December 1, 20X1, Bradley produced 12,500 units. These units had a material cost of $5, labor of $4, and overhead of $5 per unit. Bradley uses LIFO inventory accounting.

a. Assuming that Bradley sold 14,000 units during the last six months of the year at $19 each, what is its gross profit?

b. What is the value of ending inventory?
  

Solution

Answer a.

Beginning Inventory:

Number of units = 3,250

Cost per unit = Material + Labor + Overhead
Cost per unit = $4 + $4 + $2 = $10

Goods Produced:

Number of units = 12,500

Cost per unit = Material + Labor + Overhead
Cost per unit = $5 + $4 + $5 = $14

Number of units sold = 14,000

Sales Revenue = 14,000 * $19
Sales Revenue = $266,000

Cost of Goods Sold = 12,500 * $14 + 1,500 * $10
Cost of Goods Sold = $190,000

Gross Profit = Sales Revenue - Cost of Goods Sold
Gross Profit = $266,000 - $190,000
Gross Profit = $76,000

Answer b.

Ending inventory will include 1,750 units of beginning inventory costing $10 each

Ending Inventory = 1,750 * $10
Ending Inventory = $17,500