16BP Sprint Shoes Inc. had a beginnin... [FREE SOLUTION]

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Foundations Of Financial Management

Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen

Business Studies

16th Edition 路 768 pages

ISBN: 9781259277160

Chapter 2: 16BP (page 116)

Sprint Shoes Inc. had a beginning inventory of 9,250 units on January 1, 20X1. Here were the costs associated with the inventory:
Material
$15.00 per unit
Labor
8.00 per unit
Overhead
7.10 per unit
During 20X1, the firm produced 43,000 units with the following costs:
Material
$17.50 per unit
Labor
8.80 per unit
Overhead
10.30 per unit
Sales for the year were 47,350 units at $44.60 each. Sprint Shoes uses LIFO accounting. What was the gross profit? What was the value of ending inventory?

Short Answer

Expert verified

The gross profit of the company is $407,075 and the value of ending inventory is $147,490.

Step by step solution

Unit price of beginning inventory

$\begin{array}{rcl} Beginning unit price & = & Material cost + Labor cost + Overheads \\ = & $ 15 + $ 8 + $ 7.10 \\ = & $ 30.10 \end{array}$

Beginning cost of inventory

$\begin{array}{rcl} Beginning inventory cost & = & Beginning units 脳 Unit price \\ = & 9, 250 脳 $ 30.10 \\ = & $ 278, 425 \end{array}$

Cost of units produced

$\begin{array}{rcl} Cost of units produced & = & Material cost + Labor cost + Overhead \\ = & $ 17.50 + $ 8.80 + $ 10.30 \\ = & $ 36.60 \end{array}$

Cost of production

$\begin{array}{rcl} Cost of production & = & Units produced 脳 Cost of units produced \\ = & 43, 000 脳 $ 36.60 \\ = & $ 1, 573, 800 \end{array}$

Cost of sales assuming LIFO inventory accounting method

$\begin{array}{rcl} Cost of sales & = & (Units produced 脳 Cost of units produced) + (Balance units 脳 Beginning unit cost) \\ = & (43, 000 脳 $ 36.60) + ((47, 350 - 43, 000) 脳 $ 30.10) \\ = & $ 1, 573, 800 + $ 130, 935 \\ = & $ 1, 704, 735 \end{array}$

Gross profit

$\begin{array}{rcl} Gross profit & = & Sales - Cost of sales \\ = & (47, 350 脳 $ 44.60) - $ 1, 704, 735 \\ = & $ 407, 075 \end{array}$

Value of ending inventory

$\begin{array}{rcl} Ending inventory & = & Beginning inventory + Cost of production - Cost of sales \\ = & $ 278, 425 + $ 1, 573, 800 - $ 1, 704, 735 \\ = & $ 147, 490 \end{array}$

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Indicate whether item is on Balance sheet (BS) or Income statement (IS)	If on Balance sheet, designate which category	Item
		Accounts receivable
		Retained earnings
		Income tax expense
		Accrued expense
		Cash
		Selling and administrative expenses
		Plant and equipment
		Operating expenses
		Marketable securities
		Interest expense
		Sales
		Notes payable (6 month)
		Bonds payable, maturity 2019
		Common stock
		Depreciation expense
		Inventories
		Capital in excess of par value
		Net income (earning after tax)
		Income tax payable

	20X1	20X2
Sales	\(3,230,000	\)3,370,000
Cost of goods sold	2,130,000	2,850,000
Gross profits	\(1,100,000	\)520,000
Selling and administrative expenses	298,000	227,000
Operating profits	\(802,000	\)293,000
Interest expense	47,200	51,600
Income before taxes	\(754,800	\)241,400
Taxes (35%)	264,180	84,490
Income after tax	\(490,620	\)156,910

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Short Answer

Step by step solution

Unit price of beginning inventory

Beginning cost of inventory

Cost of units produced

Cost of production

Cost of sales assuming LIFO inventory accounting method

Gross profit

Value of ending inventory

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Material	\(15.00 per unit
Labor	8.00 per unit
Overhead	7.10 per unit

Material	\)17.50 per unit
Labor	8.80 per unit
Overhead	10.30 per unit