The Divine Merchandising Corporation began March operations with merchandise inv
ID: 2417128 • Letter: T
Question
The Divine Merchandising Corporation began March operations with merchandise inventory of 6 units, each of which cost $27. During March, Divine Merchandising made the following purchases: (1) March 4, 12 units @ $28 per unit, (2) March 15, 18 units @ $30 per unit, (3) March 26, 14 units @ $32 per unit. During March the Divine Merchandising Company sold the following units at a sales price of $48 per unit: March 6, 11 units, March 20, 17 units, and March 28, 12 units. Operating expenses in March were $640. The Company estimates its income taxes expense will be approximately 35% of income before taxes.
Using the FIFO inventory method, determine the income taxes expense for March. Round your answer to the nearest whole dollar.
$40
$74
$754
$1,920
$114
a.$40
b.$74
c.$754
d.$1,920
e.$114
Explanation / Answer
Answer is option a. $40.
as per FIFO method cost of units sold is :
on 6.3.15
6 unit @ 27 + 5 unit @ 28 = 32
on 20.3.15
7 unit @ 28 + 10 unit @ 30 = 496
on 28.3.15
8 unit @ 30 + 4 unit @ 32 = 368
other exenses 640
Total cost of good sold (640+368+496+302) = $1806
Total sale (40*48) 1920
net income (1920-1806) $114
tax @ 35% $39.9 or $ 40
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