E7-6 Analyzing and Interpreting the Financial Statement Effects of Periodic FFO,

Question

E7-6 Analyzing and Interpreting the Financial Statement Effects of Periodic FFO,UFO, and Weighted Average Cost[LO 73] Orion Iron Corp. tracks the number of units purchased and sold throughout each year but applies ts accounting records provided the tolowing information at the end of the annual accounting penod Units Cost 250 $10 April 11 600 12 400 12 June 1 d Sale, May 1 (sold for $45 per unt) e. Sale, July 3 (sold for $45 per unit) tax expense), $18,800 2. Calculate the number of units in ending inventory FIFO, (D) LIFO, and (c) weighted 3. Compute the cost of ending inventory and cost of goods sold under (a) FIR average cost fDo not round intermediate calculations. Round your tinal answers to the negrest Cost of Goods Sold of Ending FIFO IFO

Explanation / Answer

1. Number of goods available for sale = 250 beginning inventory + 1000 purchase

= 1250 units

Cost of goods available for sale = [250 * $10] + [(600*12) + (400 *$12)]

= $2500 + [$7200 + $4800]

= $2500 + $12000

= $14500

2. Units in Ending inventory = Number of goods available for sale - unit sold

= 1250 units - 600 units

= 650 units

3. FIFO

   Cost of goods sold = 250 units of beginning @10 = 2500

= 350 units of purchase at April 11 @ 12 = 4200

600 =$6700

Cost of ending inventory = 250 units of purchase at April 11 @ 12 = 3000

= 400 units of purchase at june 1 @ 12 = 4800

   = $7800

   LIFO

       Cost of goods sold = 400 units of purchase at june 1 @ 12 = 4800

= 200 units of purchase at April 11 @ 12 = 2400

600    = 7200

Cost of ending inventory =400 units of purchase at April 11 @ 12 = 4800

= 250 units of beginning @10 = 2500

   = $7300

   Weighted average cost

Weighted average cost = Total cost of goods available for sale / [beginning inventory + purchase]

= $14500 / 1250 units

= $ 11.6 per unit

Cost of goods sold = 600 units * $11.6 =$6960

Cost of ending inventory = 650 units $11.6 = $7540

  

4. Income statement

5. LIFO , the highest the cost of goods sold, the lowest the income from operation resulting lower income tax

FIFO LIFO Weighted average Sales 27000 27000 27000 less: cost of goods sold 6700 7200 6960 Gross margin 20300 19800 20040 less: operating expenses 18800 18800 18800 Income (loss ) from operations 1500 1000 1240

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