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Transactions Units Unit Costa. Inventory, Beginning 1,500 $ 31For the year:    b. Purchase, March 5 7,500 32c. Purchase, September 19 3,500 34d. Sale, April 15 (sold for $76 per unit) 2,200  e. Sale, October 31 (sold for $79 per unit) 6,500  f. Operating expenses (excluding income tax expense), $398,000      Required:1. Calculate the number and cost of goods available for sale.2. Calculate the number of units in ending inventory.3. Compute the cost of ending inventory and cost of goods sold under (a) FIFO, (b) LIFO, and (c) weighted average cost.4. Prepare an income statement that shows the FIFO method, LIFO method and weighted average method.6. Which inventory costing method minimizes income taxes?

Question

Transactions Units Unit Costa. Inventory, Beginning 1,500 31Fortheyear:  b.Purchase,March57,50032c.Purchase,September193,50034d.Sale,April15(soldfor 31For the year:    b. Purchase, March 5 7,500 32c. Purchase, September 19 3,500 34d. Sale, April 15 (sold for 76 per unit) 2,200  e. Sale, October 31 (sold for 79perunit)6,500 f.Operatingexpenses(excludingincometaxexpense),79 per unit) 6,500  f. Operating expenses (excluding income tax expense), 398,000      Required:1. Calculate the number and cost of goods available for sale.2. Calculate the number of units in ending inventory.3. Compute the cost of ending inventory and cost of goods sold under (a) FIFO, (b) LIFO, and (c) weighted average cost.4. Prepare an income statement that shows the FIFO method, LIFO method and weighted average method.6. Which inventory costing method minimizes income taxes?

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Solution

  1. The number and cost of goods available for sale can be calculated by adding the beginning inventory to the purchases made throughout the year.

    Number of goods available for sale = Beginning inventory + Purchases = 1,500 units + 7,500 units + 3,500 units = 12,500 units

    Cost of goods available for sale = (Beginning inventory * Unit cost) + (Purchases * Unit cost) = (1,500 units * 31)+(7,500units∗31) + (7,500 units * 32) + (3,500 units * 34)=34) = 46,500 + 240,000+240,000 + 119,000 = $405,500

  2. The number of units in ending inventory can be calculated by subtracting the units sold from the number of goods available for sale.

    Number of units in ending inventory = Number of goods available for sale - Units sold = 12,500 units - 2,200 units - 6,500 units = 3,800 units

  3. The cost of ending inventory and cost of goods sold under FIFO, LIFO, and weighted average cost can be calculated as follows:

    a) FIFO (First-In, First-Out): The first goods purchased are the first ones to be sold.

    b) LIFO (Last-In, First-Out): The last goods purchased are the first ones to be sold.

    c) Weighted Average Cost: The cost of goods available for sale is divided by the number of units available for sale to determine the average cost per unit.

  4. An income statement that shows the FIFO method, LIFO method, and weighted average method would include the following sections: Sales, Cost of Goods Sold (with separate calculations for FIFO, LIFO, and weighted average), Gross Profit, Operating Expenses, and Net Income.

  5. The inventory costing method that minimizes income taxes would be the one that results in the highest cost of goods sold, which would reduce the taxable income. This is typically the LIFO method, as it assumes that the most recently purchased (and likely more expensive) goods are sold first.

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