Question

Assume that AB Tire Store completed the following perpetual inventory transactions for a line of tires:

May 1 Beginning merchandise inventory 16 tires @ \( 65 each

11 Purchase 10 tires @ \) 78 each

23 Sale 12 tires @ \( 88 each

26 Purchase 14 tires @ \) 80 each

29 Sale 18 tires @ $ 88 each

Requirements

1. Compute cost of goods sold and gross profit using the FIFO inventory costing method.

Short answer

Cost of goods sold: $2,140

Gross Profit: $500

Step-by-step solution

Step-by-Step-SolutionStep 1: Computation of cost of goods sold using FIFO

Date	Purchase/opening			Sales			Balance
	Units	Cost per unit	Amount	Units	Cost per unit	Amount	Units	Cost per unit	Amount
May1	16	$65	$1,040				16	$65	$1,040
11	10	$78	$780				16 10	$65 $78	$1,820
23				12	$65	$780	4 10	$65 $78	$1,040
26	14	$80	$1,120				4 10 14	$65 $78 $80	$2,160
29				4 10 4	$65 $78 $80	$1,360	10	$80	$800
Total	40		$2,940	30		$2,140	10	$80	$800

Calculation of gross profit

$\begin{array}{rcl}\mathit{N}\mathit{e}\mathit{t}\mathit{R}\mathit{e}\mathit{v}\mathit{e}\mathit{n}\mathit{u}\mathit{e}& \mathbf{=}& \mathit{S}\mathit{a}\mathit{l}\mathit{e}\mathit{v}\mathit{a}\mathit{l}\mathit{u}\mathit{e}\mathit{o}\mathit{f}\mathbf{23}\mathit{r}\mathit{d}\mathit{M}\mathit{a}\mathit{y}\mathbf{+}\mathit{S}\mathit{a}\mathit{l}\mathit{e}\mathit{v}\mathit{a}\mathit{l}\mathit{u}\mathit{e}\mathit{o}\mathit{f}\mathbf{29}\mathit{t}\mathit{h}\mathit{M}\mathit{a}\mathit{y}\\ & \mathbf{=}& \mathbf{12}\mathbf{\times }\mathbf{\$}\mathbf{88}\mathbf{+}\mathbf{18}\mathbf{\times }\mathbf{\$}\mathbf{88}\\ & \mathbf{=}& \mathbf{30}\mathbf{\times }\mathbf{\$}\mathbf{88}\\ & \mathbf{=}& \mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{640}\\ & & \end{array}$

$\begin{array}{rcl}\mathit{G}\mathit{r}\mathit{o}\mathit{s}\mathit{s}\mathit{P}\mathit{r}\mathit{o}\mathit{f}\mathit{i}\mathit{t}& \mathbf{=}& \mathit{N}\mathit{e}\mathit{t}\mathit{R}\mathit{e}\mathit{v}\mathit{e}\mathit{n}\mathit{u}\mathit{e}\mathbf{-}\mathit{C}\mathit{o}\mathit{s}\mathit{t}\mathit{o}\mathit{f}\mathit{g}\mathit{o}\mathit{o}\mathit{d}\mathit{s}\mathit{s}\mathit{o}\mathit{l}\mathit{d}\\ & \mathbf{=}& \mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{640}\mathbf{-}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{140}\\ & \mathbf{=}& \mathbf{30}\mathbf{\times }\mathbf{\$}\mathbf{88}\\ & \mathbf{=}& \mathbf{\$}\mathbf{500}\\ & & \end{array}$