3. Refer to 2. above. In its second year of operations, XYZ manufactured 2,000 u

Question

3. Refer to 2. above. In its second year of operations, XYZ manufactured 2,000 units of product and incurred $410,000 direct material costs and $275,000 direct labor costs. For financial statement purposes, XYZ capitalized $139,000 indirect costs to inventory. For tax purposes, it had to capitalize an additional $65,000 indirect costs to inventory under §263A. At the end of its second year, XYZ had 300 items in inventory. Compute XYZ's cost of goods sold for book purposes and for tax purposes assuming that: 1. XYZ uses the FIFO costing convention (10 points) 2. XYZ uses the LIFO costing convention.(10 points)

Explanation / Answer

Units Produce 2000 in $ Direct material Cost                                             410,000 Direct Labor Cost                                             275,000 Indirect Cost of Inveotry                                             139,000 Cost of production for 1000 Units for financial purpose                                             824,000 Add: Additional indirect Cost                                               65,000 Cost of production for 1000 Units for Tax                                             889,000 Opening Stock 260 Value for books purpose (415000/1000)*(1000-260) 107900 Value for tax purpose (460000/1000)*(1000-260) 119600 FIFO method Cost of Goods sold for books (824000/2000)*(2000-300)+107900 =        808,300 Cost of Goods sold for Tax purpose (889000/2000)*(2000-300)+119600 =        875,250 LIFO method Cost of Goods sold for books (824000/2000)*(2000-40) = 807520 Cost of Goods sold for Tax purpose (889000/2000)*(2000-40) = 871220 Opening Stock 260 Production 2000 Closing Stock 300 Means in Lifo method all units sold from current year production Sale units (260+2000-300) 1960

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