25th Century Electronic Cenerbegan October with 100 units of merchandise invento

Question

25th Century Electronic Cenerbegan October with 100 units of merchandise inventory that cost $70 each. During October, the store made the following purchases: ?(Click the icon to view the purchases.) 25th Century uses the periodic inventory system, and the physical count at October 31 indicates that 130 units of merchandise inventory are on hand Read the reguirements Requirement1. Determine the ending merchandise inventory and cost of goods sold amounts for the October financial statements using the FIFO, LIFO, and weighted-average inventory costing methods FIFO Ending inventory Cost of goods sold Data Table Requirements Oct 335 units S 82 each 12 45 units@ S 84 each 18 75 units $ 90 each 1. Determine the ending merchandise inventory and cost of goods sold amounts for the October financial statements using the FIFO, LIFO, and weighted-average inventory costing methods. 2. Sales revenue for October totaled $24,000. Compute 25th Century's gross profit for October using each method Print Done 3. Which method ill result in the lowest income taxes for 25th Century? Why? Which method will result in the highest net income for 25th Century? Why? Print Done

Explanation / Answer

1 Calculation of COGS and ending inventory under FIFO Balance Units Opening Stock                100                 100 Purchase on Oct 3                  35                 135 Purchase on Oct 12                  45                 180 Purchase on Oct 18                  75                 255 Closing stock               (130) Sales will be                 125 Out of 125 sold, 100 will be from opening stock and remaining 25 will be from purchase made on Oct 3 So, COGS will be (100*$70)+(25*$82) = $ 9,050 Closing stock of 130 units will consist of 10 units from Oct 3 purchase and rest from Oct 12 and Oct 18 purchases So. Closing stock will be (10*$82)+(45*$84)+(75*$90) = $ 11,350 Calculation of COGS and ending inventory under LIFO Out of 125 sold, 75 will be from purchase made on Oct 18, 45 will be from purchase made on Oct 12 and 5 will be from purchase made on Oct 3. So COGS will be (5*$82)+(45*$84)+(75*$90) = $10,940 Closing stock of 130 units will consist of 30 units from Oct 3 purchase, 100 units from opening stock So. Closing stock will be (100*$70)+(30*$82) = $ 9,460 Calculation of COGS and ending inventory under weighted average Calculation of weighted average cost Quantity Price Opening Stock                100 70              7,000 Purchase on Oct 3                  35 82              2,870 Purchase on Oct 12                  45 84              3,780 Purchase on Oct 18                  75 90              6,750                255           20,400 Weighted average cost = 20,400/255 = $80 COGS under weighted average = (125*$80) = $ 10,000 Closing stock under weighted average = (130*$80) = $ 10,400 As lowest COGS is under FIFO method, FIFO method will report the highest net income 2 Determination of gross profit under each method FIFO LIFO Weighted Avg. Sales          24,000           24,000           24,000 Less COGS          (9,050)         (10,940)         (10,000) Gross Profit          14,950           13,060           14,000 3 LIFO method will result in the lowest income tax for 25th Century. Because COGS is the highest in LIFO method Which will result in lower net profit and lower amount of tax. FIFO method will result in the highest income tax for 25th Century. Because COGS is the lowest in FIFO method. Which will result in higher net profit and higher amount of tax.

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