Accounting Solution 7.1 (Accounting for Inventories)
1) The costs of goods sold under FIFO, LIFO and weighted-average are determined as follows:
FIFO
| Beginning Inventory: | 50 units x $20 |
= $1,000 |
| First Purchase: | 100 units x $22 |
= $2,200 |
| Second Purchase: | 130 units x $26 |
= $3,380 |
| Total: |
|
$6,580 |
LIFO
| Second Purchase: | 150 units x $26 |
= $3,900 |
| First Purchase: | 100 units x $22 |
= $2,200 |
| Beginning Inventory: | 30 units x $20 |
= $600 |
| Total: |
|
$6,700 |
Weighted - Average
The cost of goods available for sale:
50 x $20 + 100 x $22 + 150 x $26 = $7,100
The number of goods available for sale:
50 + 100 + 150 = 300 units
Cost per unit is $23.67 ($7,100 / 300 units)
The cost of goods sold is therefore $6,627.6 ($23.67 x 280 units)
2) The calculation of net income and income tax expenses:
| FIFO |
LIFO |
Weighted- |
|
| Sales | $11,200 |
$11,200 |
$11,200 |
| Cost of Goods Sold | (6,580) |
(6,700) |
(6,628)* |
| Gross Margin | $4,620 |
$4,500 |
$4,572 |
| Sell. & Admin. Expenses | (1,200) |
(1,200) |
(1,200) |
| Income before Taxes | $3,420 |
$3,300 |
$3,372 |
| Income Taxes (Income x 20%) | $684 |
$660 |
$674.4 |
* Rounded
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