FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Heinrich Company, which uses a periodic inventory system, imports and sells a product produced in Germany. In the summer of 2018, a natural disaster disrupted production, affecting its supply of product. Heinrich uses the LIFO inventory method. On January 1, 2019, Heinrich’s inventory records were as follows:
Year purchased Quantity (units) Cost per unit Total cost
2017 2,500 $20 $ 50,000
2018 4,500 $40 180,000
Total 7,000 $230,000
Through mid-December of 2019, purchases were limited to 50,000 units, because the cost had increased to $50 per unit. Heinrich sold 55,000 units during 2019 at a selling price of $100 per unit, which significantly depleted its inventory. The cost was expected to drop to $42 per unit by early January 2020.
a) Assume that Heinrich makes no further purchases during 2019. Compute the gross profit for 2019.
b) Assume that Heinrich purchases 8,800 units before the end of December 2019 at $50 each. Compute its gross profit for 2019.
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