The management of Weigel Inc. asks your help in determining the comparative effe
ID: 2446478 • Letter: T
Question
The management of Weigel Inc. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods. For 2014 the accounting records show these data.
Inventory, January 1 (4,000 units) $ 16,000
Cost of 105,000 units purchased 470,500
Selling price of 100,000 units sold 900,000
Operating expenses 185,000
Units purchased consisted of 35,000 units at $4.21 on March 20; 65,000 units at $4.60 on July 24; and 5,000 units at $4.83 on December 12. Income taxes are 30%.
(a) Prepare comparative condensed income statements for 2014 under FIFO and LIFO. (Show computations of ending inventory.)
Explanation / Answer
Solution :
Income Statement
Under FIFO
Under LIFO
SALES
900,000
900,000
LESS : COGS (refer working)
443,950
449,450
Gross Profit
185,000
185,000
LESS : OPERATING EXPENSE
258,950
264,450
LESS :TAX @ 30%
77,685
79,335
PAT
181,265
185,115
Working for COGS :
COGS UNDER FIFO
units
$
January 1 (4,000 units)
4,000
16,000
Purchae on march 20
35,000
147,350
Purchae on july 24
61,000
280,600
Total
100,000
443,950
COGS UNDER LIFO
units
$
Purchase on dec 12
5,000
24,150
Purchae on july 24
65,000
299,000
Purchae on march 20
30,000
126,300
Total
100,000
449,450
COGS = COST OF GOODS SOLD
PAT = PROFIT AFTER TAX
Computation of ending inventory
UNITS
opening inventory
4,000
Purchase on Mar 20
35,000
Purchase on July 24
65,000
Purchase on dec 12
5,000
total
109,000
units sold
100,000
Closing inventory in units
9,000
valuation under FIFO
$
FIFO (Latest purchase)
Dec 12. (5000 * 4.83)
24,150
July 24. (4000 * 4.60)
18,400
valuation under FIFO
42,550
valuation under LIFO
$
LIFO (Earliest purchase)
opening inventory (4000*4)
16,000
Mar 20 (5000*4.21)
21,050
valuation under FIFO
37,050
Income Statement
Under FIFO
Under LIFO
SALES
900,000
900,000
LESS : COGS (refer working)
443,950
449,450
Gross Profit
185,000
185,000
LESS : OPERATING EXPENSE
258,950
264,450
LESS :TAX @ 30%
77,685
79,335
PAT
181,265
185,115
Working for COGS :
COGS UNDER FIFO
units
$
January 1 (4,000 units)
4,000
16,000
Purchae on march 20
35,000
147,350
Purchae on july 24
61,000
280,600
Total
100,000
443,950
COGS UNDER LIFO
units
$
Purchase on dec 12
5,000
24,150
Purchae on july 24
65,000
299,000
Purchae on march 20
30,000
126,300
Total
100,000
449,450
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