Sheridan Company uses a periodic inventory system. Details for the inventory account for the month of January, 2020 are as follows: Units Per unit price Total Balance, 1/1/20 200 $5.00 $1000 Purchase, 1/15/20 120 5.40 648 Purchase, 1/28/20 120 5.50 660 An end of the month (1/31/20) inventory showed that 160 units were on hand. If the company uses FIFO and sells the units for $8 each, what is the gross profit for the month

$808

Explanation:

FIFO method assumes that the units to arrive first, will be sold first. This means that the Cost of Goods sold will be based on earlier (old) prices.

Also, the periodic inventory system ensures that the cost of sales and the ending inventory are determined at the end of the period. For this question, the end of period is monthly.

Step 1 : Determine Number of Units Sold

Units Sold = Units available for sale - Inventory Units

                 = (200 + 120 + 120) - 160

                 = 440 - 160

                 = 280 units

Step 2 : Determine Cost of Sales

Cost of Sales = 200 units x $5 + 80 units x $5.40

                      = $1,432

Step 3 : Determine Gross Profit

Gross Profit = Sales - Cost of Goods Sold

                    = ($8 x 280 units) - $1,432

                    = $2,240 - $1,432

                    = $808

Conclusion

The gross profit for the month is $808

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