Orion Iron Corp. tracks the number of units purchased and sold throughout each y
ID: 2396031 • Letter: O
Question
Orion Iron Corp. tracks the number of units purchased and sold throughout each year but applies its inventory costing method at the end of the year, as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the annual accounting period, December 31.
1.
Number of goods Available for sale 2,100 units
Cost of goods available for sale 25,200
Ending inventory 970 units
-LIFO
-WEIGHTED AVERAGE COST
Orion Iron Corp. tracks the number of units purchased and sold throughout each year but applies its inventory costing method at the end of the year, as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the annual accounting period, December 31.
3. Compute the cost of ending inventory and cost of goods sold under (a) FIFO, (b) LIFO, and (c) weighted average cost. (Do not round intermediate calculations. Round your final answers to the nearest dollar amount.) Cost of Ending Inventory Cost of Goods Sold FIFO LIFO Weighted Average Cost 4. Prepare an Income Statement that shows the FIFO method, LIFO method and weighted average method ORION IRON CORP Income Statement For the Year Ended December 31 Weighted Average FIFO LIFO Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses Income (loss) from operationsExplanation / Answer
Answers
Answers are Underlined
Cost of Goods Sold and Value of Ending Inventory by all methods:
FIFO
Cost of Goods available for sale
Cost of Goods Sold
Ending Inventory
Units
Cost/unit
COG for sale
Units sold
Cost/unit
COGS
Units
Cost/unit
Ending inventory
Beginning Inventory
450
$ 10.00
$ 4,500.00
450
$ 10.00
$ 4,500.00
0
$ 10.00
$ -
Purchases:
11-Apr
900
$ 8.00
$ 7,200.00
680
$ 8.00
$ 5,440.00
220
$ 8.00
$ 1,760.00
01-Jun
750
$ 18.00
$ 13,500.00
$ 18.00
$ -
750
$ 18.00
$ 13,500.00
TOTAL
2100
$ 25,200.00
1130
$ 9,940.00
970
$ 15,260.00
LIFO
Cost of Goods available for sale
Cost of Goods Sold
Ending Inventory
Units
Cost/unit
COG for sale
Units sold
Cost/unit
COGS
Units
Cost/unit
Ending inventory
Beginning Inventory
450
$ 10.00
$ 4,500.00
0
$ 10.00
$ -
450
$ 10.00
$ 4,500.00
Purchases:
0
$ -
$ -
11-Apr
900
$ 8.00
$ 7,200.00
380
$ 8.00
$ 3,040.00
520
$ 8.00
$ 4,160.00
01-Jun
750
$ 18.00
$ 13,500.00
750
$ 18.00
$ 13,500.00
0
$ 18.00
$ -
TOTAL
2100
$ 25,200.00
1130
$ 16,540.00
970
$ 8,660.00
Average Method
Cost of Goods available for sale
Cost of Goods Sold
Ending Inventory
Units
Cost/unit
COG for sale
Units sold
Cost/unit
COGS
Units
Cost/unit
Ending inventory
Beginning Inventory
450
$ 10.00
$ 4,500.00
Purchases:
0
$ -
$ -
11-Apr
900
$ 8.00
$ 7,200.00
01-Jun
750
$ 18.00
$ 13,500.00
TOTAL
2100
$ 12.00
$ 25,200.00
1130
$ 12.00
$ 13,560.00
970
$ 12.00
$ 11,640.00
Sales
Units
Rate
Amount
May-01
450
$ 38.00
$ 17,100.00
Jul-03
680
$ 38.00
$ 25,840.00
Total
1130
$ 42,940.00
FIFO
LIFO
Weighted Average Method
Sales Revenue
$ 42,940.00
$ 42,940.00
$ 42,940.00
(-) Cost of Goods Sold (as calculated above)
$ 9,940.00
$ 16,540.00
$ 13,560.00
Gross Margin
$ 33,000.00
$ 26,400.00
$ 29,380.00
(-) Operating Expenses
$ 19,700.00
$ 19,700.00
$ 19,700.00
Income (Loss) from Operations
$ 13,300.00
$ 6,700.00
$ 9,680.00
LIFO Method minimises Income Taxes, because:
---Ending inventory is valued at earliest cost which are lower (generally)
---Cost of Goods Sold is at inflated latest prices.
---Higher cost of goods sold = lower Gross profits.
---Lower gross profits = lower income = lower income taxes.
FIFO
Cost of Goods available for sale
Cost of Goods Sold
Ending Inventory
Units
Cost/unit
COG for sale
Units sold
Cost/unit
COGS
Units
Cost/unit
Ending inventory
Beginning Inventory
450
$ 10.00
$ 4,500.00
450
$ 10.00
$ 4,500.00
0
$ 10.00
$ -
Purchases:
11-Apr
900
$ 8.00
$ 7,200.00
680
$ 8.00
$ 5,440.00
220
$ 8.00
$ 1,760.00
01-Jun
750
$ 18.00
$ 13,500.00
$ 18.00
$ -
750
$ 18.00
$ 13,500.00
TOTAL
2100
$ 25,200.00
1130
$ 9,940.00
970
$ 15,260.00
LIFO
Cost of Goods available for sale
Cost of Goods Sold
Ending Inventory
Units
Cost/unit
COG for sale
Units sold
Cost/unit
COGS
Units
Cost/unit
Ending inventory
Beginning Inventory
450
$ 10.00
$ 4,500.00
0
$ 10.00
$ -
450
$ 10.00
$ 4,500.00
Purchases:
0
$ -
$ -
11-Apr
900
$ 8.00
$ 7,200.00
380
$ 8.00
$ 3,040.00
520
$ 8.00
$ 4,160.00
01-Jun
750
$ 18.00
$ 13,500.00
750
$ 18.00
$ 13,500.00
0
$ 18.00
$ -
TOTAL
2100
$ 25,200.00
1130
$ 16,540.00
970
$ 8,660.00
Average Method
Cost of Goods available for sale
Cost of Goods Sold
Ending Inventory
Units
Cost/unit
COG for sale
Units sold
Cost/unit
COGS
Units
Cost/unit
Ending inventory
Beginning Inventory
450
$ 10.00
$ 4,500.00
Purchases:
0
$ -
$ -
11-Apr
900
$ 8.00
$ 7,200.00
01-Jun
750
$ 18.00
$ 13,500.00
TOTAL
2100
$ 12.00
$ 25,200.00
1130
$ 12.00
$ 13,560.00
970
$ 12.00
$ 11,640.00
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