e: 09:49 PM/Remaining: 113 min. Question 1 Hansen Company uses the periodic inve
ID: 2551611 • Letter: E
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e: 09:49 PM/Remaining: 113 min. Question 1 Hansen Company uses the periodic inventory method and had the following inventory information available: Units Unit Cost Total Cost 100 $300 2,000 1/20 Purchase 7/25 Purchase 10/20 Purchase 100 $5 1,800 $4,600 1,000 A physical count of inventory on December 31 revealed that there were 380 units on hand. Answer the following independent questions 1. Assume that the company uses the FIFO method. The value of the ending inventory at December 31 is 2. Assume that the company uses the average cost method. The value of the ending inventory on December 31 is 3. Assume that the company uses the LIFO method. The value of the ending inventory on December 31 is 4. (a) Determine the difference in the amount of income that the company would have reported if it had used the FIFO method instead of the 4. Would income have been greater or less? Click if you would like to Show Work for this question: Open Show Work LIFO method n 4.24.5.1Explanation / Answer
Units available for sale = 1000 units
Units in inventory = 380 units
Units sold = 1000 units - 380 units = 620 units
Answer 1 : Value of inventory under FIFO : Under FIFO , inventory consist of units purchased at later date . Thus out of 380 units in inventory , 80 units is from purchase made on 7/25 & 300 units from purchase made on10 /20
Value of Inventory = (80 units * $5) + (300 units * $6) = $400 + $1800 = $2,200
Answer 2 : Value of inventory under average cost method :
Average cost per unit = $4,600 / 1,000 units = $4.6
Value of Inventory = 380 units * $46 = $1,748
Answer 3 : Value of inventory under LIFO : Under LIFO , inventory consist of units purchased at earliar date . Thus out of 380 units in inventory , 280 units is from purchase made on 1/20 & 100 units from beginning inventory on 1/1
Value of Inventory = (280 units * $4) + (100 units * $3) = $1,120+ $300 = $1,420
Answer 4 a
Note : The difference in net profit under two methods ie FIFO & LIFO will be the difference of COGS under those two methods. Method with higher COGS will have less profit than the other method.
COGS under FIFO = Total cost - Value of inventory under FIFO = $4,600 - $2,200 = $2,400
COGS under LIFO = Total cost - Value of inventory under LIFO = $4,600 - $1,420 = $3,180
The difference in amount of net income if company used FIFO method instead of LIFO = $3,180 - $2,400 = $780
Answer 4 b
Income have been greater
Explanation : Since COGS under FIFO is less than COGS under LIFO , overall expenses under FIFO is also less resulting in higher income.
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