Chapter 6 Homework Assignment Staples began the year with 54 Texas Instruments f

Question

Chapter 6 Homework Assignment Staples began the year with 54 Texas Instruments financial calculators, Model 812I that have a cost of $18 each. In addition to the beginning inventory, during the year Staples made the following purchases of this same product Date Qty Unit Cost Total Cost Jan 1 (Beg Inventory) 54 March 2 May 16 July 24 Sept 10 Nov 6 Totals 18.00 S loso 84x 20.00 72x 22.0015 320 x 24.00 off) 96 x 24.00-23 144x 27.00 181O8 AVN 23S2 At the end of the year, a physical inventory revealed that 65 units of this calculator remain on the shelf. Staples sold this calculator for $79.00 each, maintaining the price throughout the year. Staples incurred $25.00 operating expense assigned to this calculator for each unit sold. Staples is in the 35%tax

Explanation / Answer

1)

2) Abbreviated Income statement

3) For tax purpose we recommend LIFO method to management of Staples as tax paid is minimum under LIFO method.

Ending Inventory Cost of goods sold FIFO $1,755 $16,353 LIFO $16,916 $16,916 Weighted Avg $1,528.60 $16,579

2) Abbreviated Income statement

FIFO LIFO Weighted Avg Sales (a) $55,695 $55,695 $55,695 Less: Cost of Goods Sold (b) Beginning Inventory $972 $972 $972 Add: Purchases* $17,136 $17,136 $17,136 Less: Closing Inventory $1,755** $16,353 $1,192*** $16,916 $1,528.60**** $16,579 Gross Profit (a)-(b) $39,342 $38,779 $39,116 Less : Operating Expenses 705 * $25 $17,625 705 * $25 $17,625 705 * $25 $17,625 Income Before Tax $21,717 $21,154 $21,491 Income tax @ 35% $                 7,600.95 $ 7,403.90 $         7,521.71 Net Income $14,116 $13,750 $13,969 * Purchases = 84*$20 + 72* $22 + 320*$24 + 96*$24 + 144*$27 = $17136 **Closing Inventory Under FIFO = 65*$27 = $1755 ***Closing Inventory Under LIFO = 54* $ 18 + 11*$20 = $1192 ****Closing Inventory Under Weighted avg = 65* $ 23.517 = $1528.6 Avg Cost = Total Cost / No. of units = $18108/770 = $ 23.517

3) For tax purpose we recommend LIFO method to management of Staples as tax paid is minimum under LIFO method.

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