In Pricing the gallons of petrol sold,service station 'A'
follows the first-in-first-out method,while service
station'B'follows last-in-first-out method.On 1st January
both has the same quantity in stock viz.6,000 gallons at
Rs.26 per gallon.During the month,each station recieved
additional supplies of 6,000 gallons at Rs.27.50 per
gallon.Sales for each of these two stations,during the
month,were 8,800 gallons at Rs.29 per gallon.
Determine for each service station,profit earned during
the month and value of the petrol in stock at close of the
month.
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Answer / Ankit Goel
First, we will calculate the cost of goods sold for each station using the given methods:nService Station A (FIFO):nCost of goods sold = 6,000 gallons * 26/gallon = Rs. 156,000.nEnding inventory: 3,600 gallons (6,000 - 8,800)nProfit earned: Sales - Cost of goods sold - (Sales * Absorbed cost) - (Sales * Selling expenses) = 8,800 * 29 - 156,000 - (8,800 * 30%) - (8,800 * 10%) = Rs. 176,480.nValue of petrol in stock: 3,600 gallons * 29/gallon = Rs. 103,600.nService Station B (LIFO):nCost of goods sold = 5,400 gallons (8,800 - 6,000 + 6,000)nProfit earned: Sales - Cost of goods sold - (Sales * Absorbed cost) - (Sales * Selling expenses) = 8,800 * 29 - 171,400 - (8,800 * 30%) - (8,800 * 10%) = Rs. 96,520.nValue of petrol in stock: 5,400 gallons * 27.5/gallon = Rs. 146,250.
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