Hay Company had January 1 inventory of $300,000 when it adopted dollar-value LIFO. During the year, purchases were $1,800,000 and sales were $3,000,000. December 31 inventory at year-end prices was $379,500, and the price index was 110.

What is Hay Company’s gross profit? please show work

a. 1,279,500

b. 1,245,000

c. 2,650,500

d. 1,249,500

d. 1,249,500

Explanation:

Hay Company had January 1 inventory of $300,000 when it adopted dollar-value LIFO. During the year, purchases were $1,800,000 and sales were $3,000,000. December 31 inventory at year-end prices was $379,500, and the price index was 110.

Profit can be calculated as follow :

Revenue = $300,000

Purchase = $1,800,000

Sales = $3,000,000

Price index = 110

Using the formula :

Hay Company’s gross profit = 3000,000 - [{($300,000 * 110%) + $1800,000} - $379,500]

= 3000000 - [(330000 + 1800000) - 379500]

= 300000 - 1750500

= 1249500

Hence, option D is correct.

d. 1,249,500

Explanation:

Gross profit of the period

Sales revenue

3000000

Less: cost of goods Sold

Beginning inventory. 300000

Add: purchase. 1800000

To cost of goods available for sale 900000

Less: ending inventory. 369500

Cost of Goods sold 1750500

Gross profit of the period. 1249500

Therefore, the gross profit hay company during that period is given as 1,249,500 with step by step solution written in the above table.

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