> C?O ezto.mheducation.com/hm.tpx value: 0.57 points E7-6 Analyzing and Interpre
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> C?O ezto.mheducation.com/hm.tpx value: 0.57 points E7-6 Analyzing and Interpreting the Flnanclal Statement Effects of Perlodic FIFO, LIFO, and Welghted Average Cost [LO 7-3 Oion 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, Units Cost 300 $14 a In For the year. b. Beginning April 11 June 1 850 750 12 15 d Sale, May 1 (sold for $42 per unit) e. Sale, July 3 (sold for $42 per unit) es (exc Required: 1 Calculate the number and cost of goods available for sale. units Number of Goods Available for Sale Cost of Goods Available for Sale 2. Calculate the number of units in ending inventoryExplanation / Answer
Answer
Units
Amount
Opening Inventory
300
$4200
Add: Purchases
1600
$21450
Goods Available for Sale
1900
$25650
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
300
14
4200
300
14
4200
0
14
0
Purchases:
Apr-11
850
12
10200
540
12
6480
310
12
3720
Jun-01
750
15
11250
0
15
0
750
15
11250
0
0
0
0
0
0
0
0
0
0
0
0
TOTAL
1900
$25650
840
$10680
1060
$14970
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
300
14
4200
0
14
0
300
14
4200
Purchases:
Apr-11
850
12
10200
90
12
1080
760
12
9120
Jun-01
750
15
11250
750
15
11250
0
15
0
0
0
0
0
0
0
0
0
0
0
0
0
0
TOTAL
1900
$25650
840
$12330
1060
$13320
W. 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
300
14
4200
Purchases:
Apr-11
850
12
10200
Jun-01
750
15
11250
0
0
TOTAL
1900
$13.5
$25650
840
$13.5
$11340
1060
$13.5
$14310
Weighted Average method rate = $13.5 [25650 / 1900units]
Cost of Goods Sold = 840 units sold x $13.5 = $11,340
Cost of Ending Inventory = 1060 units x $13.5 = $14,310
Total Sales
Sales
Units
Rate
Amount
May-01
300
42
12600
Jul-03
540
42
22680
0
0
Total
840
$35280
Income Statements
FIFO
LIFO
Weighted Average Method
Sales Revenue
35280
35280
35280
(-) Cost of Goods Sold (as calculated above)
10680
12330
11340
Gross Margin
24600
22950
23940
(-) Operating Expenses
19200
19200
19200
Income from Operations
$5400
$3750
$4740
LIFO Method is the one that Minimises Income taxes [Option-2], because:
Ending Inventory is valued at earliest cost, leading to lower cost of ending inventory.
This results in higher cost of goods sold and lower gross margin and lower incomes.
Lower income will lead to lower income taxes.
Units
Amount
Opening Inventory
300
$4200
Add: Purchases
1600
$21450
Goods Available for Sale
1900
$25650
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