In 2014, the Whaddock Company purchased 1,560,000 units from its supplier at a cost of $250.00 per unit.
Whaddock sold 1,525,000 units of its product in 2014 at a price of $350.00 per unit. Whaddock began 2014
with 425,000 units in inventory (inventory is carried at a cost of $250.00 per unit). Using this information,
compute Whaddock’s gross profit for 2014.
To compute Whaddock's gross profit for 2014, we need to calculate the cost of goods sold (COGS) and subtract it from the total sales revenue.
1. Calculate the cost of goods sold (COGS):
COGS = Opening inventory + Purchases during the year - Closing inventory
Opening inventory = 425,000 units
Purchases during the year = 1,560,000 units
Closing inventory = (Opening inventory + Purchases) - Units Sold
Closing inventory = (425,000 + 1,560,000) - 1,525,000 = 460,000 units
COGS = 425,000 + 1,560,000 - 460,000 = 1,525,000 units
2. Calculate the total sales revenue:
Total sales revenue = Units sold × Price per unit
Units sold = 1,525,000 units
Price per unit = $350.00
Total sales revenue = 1,525,000 × 350 = $533,750,000
3. Calculate the gross profit:
Gross profit = Total sales revenue - COGS
Gross profit = $533,750,000 - (1,525,000 × $250) = $533,750,000 - $381,250,000 = $152,500,000
Therefore, Whaddock's gross profit for 2014 is $152,500,000.