Jones Company had 100 units in beginning inventory at a total cost of $10,000. T

Question

Jones Company had 100 units in beginning inventory at a total cost of $10,000. The company purchased 200 units at a total cost of $26,000. At the end of the year, Jones had 80 units in ending inventory.



Compute the cost of the ending inventory and the cost of goods sold under (1) FIFO, (2) LIFO, and (3) average-cost.
FIFO LIFO Average-Cost
Ending Inventory $ $ $
Cost of goods sold $ $ $



Which cost flow method would result in the highest net income?


Which cost flow method would result in inventories approximating current cost in the balance sheet?


Which cost flow method would result in Jones paying the least taxes in the first year?

Explanation / Answer

First 100 units are $100. The next 200 units were $130. a. (1)FIFO: Ending inventory: 80 units of $130 = $10,400 COGS: 100 units of $100, 120 units of $130 = $25,600 (2)LIFO: Ending inventory: 80 units of $100 = $8,000 COGS: 20 units of $100, 200 units of $130 = $28,000 (3) Average-cost: Total cost / total units = 36,000/300 = $120 Ending inventory: 80 units of $120 = $9,600 COGS: 220 units of $120 = $26,400 b. FIFO method results in the highest net income (Lowest COGS). c. FIFO method results in inventories approximating current cost in the balance sheet. (since more recent items are the ones assumed to be in inventory) d. LIFO results in the lowest taxes in the first year as it has the lowest income.

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