Question

Turner Corporation acquired two inventory items at a lump-sum cost of $80,000. The acquisition included 3,000 units of product LF, and 7,000 units of product 1B. LF normally sells for $24 per unit, and 1B for $8 per unit.

If Turner sells 1,000 units of LF, what amount of gross profit should it recognize?


a. $3,000
b. $9,000.
c. $16,000.
d. $19,000.

Answer 1

Answer:

b.$9,000

Explanation:

Gross profit can be calculated by the entity using the below formula:

Gross profit:Sales- Cost of sales

In this question sales and cost of sales can be calculated as follows:

Sales=Number of units of LF sold by Turner Corporation*sales price

        =1,000*24=$24,000

Since the entity is selling LF for 24$ which is 3 times the price at which it is selling 1B and assuming that the Turner Corporation is earning same gross profit percentage on both products, then cost of sales can be determined as follows:

Let say cost of 1B is "x" then the cost of LF will be "3x",applying the above to cost of sales for LF can be determined as :

3,000(3x)+7,000(x)=80,000

9000x+7000x=80,000

16,000x=80,000

x=5(80,000/16,000)

Cost for one unit of LF=3*5=15

Cost of sales for 1,000 units=15*1000=15,000

Gross profit=24,000-15,000=$9,000

Answer is b.$9,000