Question
A friend of yours has asked for your assistance in determining the gross profit for her new promotions company that distributes branded refillable water bottles
A friend of yours has asked for your assistance in determining the gross profit for her new promotions company that distributes branded refillable water bottles to her only client. The agreed upon selling price to her customer for the entire year was $5.00 per unit.
Her beginning and ending inventory were 500 units and there was no inventory shrinkage or returns. Assume the starting inventory cost per unit was $2.00. She uses a periodic inventory method. Her purchases were as follows, which included shipping charges.
Quarter | Cost w/ Shipping | Quantity Ordered |
---|---|---|
Quarter 1 | $2.00 per unit | 1,200 |
Quarter 2 | $2.05 per unit | 1,000 |
Quarter 3 | $2.15 per unit | 1,300 |
Quarter 3 | $2.25 per unit | 1,500 |
What was her total gross profit for the year? Which inventory cost flow assumption did you use and why (either FIFO, LIFO, Avg.)? Formulate a thoughtful response in 100 to 250 words. Include the accounting principle(s) you used.
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