P6-4B The management of Patel Co. is reevaluating the appropriateness of using i
ID: 2419419 • Letter: P
Question
P6-4B The management of Patel Co. is reevaluating the appropriateness of using its present inventory cost flow method, which is average-cost. They request your help in determining the results of operations for 2015 if either the FIFO method or the LIFO method had been used. For 2015, the accounting records show the following data. Inventories Purchases and Sales Beginning (15,000 units) Ending (28,000 units) Total net sales (217,000 units) Total cost of goods purchased $32,000 $865,000 (230,000 units) 600,000 Purchases were made quarterly as follows. Quarter Units Unit Cost Total Cost 50,000 $2.40 50,000 70,000 $144,000 125,000 135,000 196,000 $600,000 60,000 2.50 2.70 2.80 4 230,000 Operating expenses were $147,000, and the company's income tax rate is 34%.Explanation / Answer
b) 1. FIFO provides more meaningful inventory amount because in FIFo the value of inventory is more than in LIFO.The items remaining in inventory were purchased at more recent and are at higher prices.
2) FIFO provides more meaningful income as the ending value of inventory is higher so the affect on income increases.
3) FIFO because the items which comes first is sold first
4) $18760 (78400-59640) is more available in LIFO
5 ) FIFo method gross profit is more
A) Income Statement FIFO LIFO in $ Average Net sales 865000 865000 865000 Ending Units 78400 59640 72800 Total 943400 924640 937800 Beginning Inventory $32,000 $32,000 $32,000 Purchases 600000 600000 600000 Gross profit $311,400 $292,640 $305,800 Operating expenses 147000 147000 tOTAL $779,000 $779,000 Income $164,400 $145,640 Less: Tax $55,896 $49,518 Net Income $108,504 $96,122Related Questions
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