The board of directors of Sweet Corporation is considering whether or not it sho

Question

The board of directors of Sweet Corporation is considering whether or not it should instruct the accounting department to shift from a first-in, first-out (FIFO) basis of pricing inventories to a last-in, first-out (LIFO) basis. The following information is available.

Sales 18,900 units @ $56
Inventory, January 1st 6,100 units @ 22
Purchases 6,500 units @ 25
9,400 units @ 28
6,800 units @ 34
Inventory, December 31 9,900 units @ ?
Operating expenses $224,000
Prepare a condensed income statement for the year on both bases for comparative purposes.

Explanation / Answer

Condensed income statement under FIFO: Sales (18900*56) 1058400 Less: Cost of goods sold (Note:1) 473100 Operating expenses 224000 697100 Operating income 361300 Notes 1. Computation of cost of goods sold under FIFO FIFO is based on the principle that goods purchased first are sold first 18900 units are sold during january in the following order under FIFO Unit Rate Cost Opening inventory 6100 22 134200 Purchases 6500 25 162500 6300 28 176400 (18900-6100-6500) 18900 473100 Condensed income statement under LIFO: Sales (18900*56) 1058400 Less: Cost of goods sold (Note:2) 561900 Operating expenses 224000 785900 Operating income 272500 Notes 2. Computation of cost of goods sold under LIFO LIFO is based on the principle that goods purchased last are sold first 18900 units are sold during january in the following order under FIFO Unit Rate Cost Purchased units 6800 34 231200 9400 28 263200 2700 25 67500 (18900-6800-9400) 18900 561900

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