P6-71B (Learning Objective 2, 3: Computing inventory by three methods-perpetual
ID: 2559973 • Letter: P
Question
P6-71B (Learning Objective 2, 3: Computing inventory by three methods-perpetual system) SWAT Team Surplus began July with 66 tents that cost 23 each. During the month, SWAT Team Surplus made the following purchases at cost Jul 4 19 25 105 tents @ €25 =€2,625 157 tents @ €27 = 4.239 37tents @ €28 = 1,036 SWAT Team Surplus sold 310 tents, and at July 31 the ending inventory consists of 55 tents. The sale price of each tent was 53. I Requirements Determine the cost of goods sold and ending inventory amounts for July under the aver- age cost, FIFO cost, and LIFO cost. Round average cost per unit four decimal places, and round all other amounts to the nearest dollar 1. 2. Explain why cost of goods sold is highest under LIFO. Be specific. 3. Prepare SWAT Team Surplus income statement for July. Report gross profit. Operating expenses totaled 3,000. SWAT Team Surplus uses average costing for inventory. The income tax rate is 32%Explanation / Answer
Working: A B C D=B*C Date No of Tents Rate Total Value 01-Jul 66 23 1518 04-Jul 105 25 2625 19-Jul 157 27 4239 25-Jul 37 28 1036 Total (1) 365 9418 Sale (2) 310 53 16430 Ending Inventory 3=1-2 55 1. Cost of Goods Sold and Ending inventory Average Cost: Total No. of tents 365 From Above working Tents Value 9418 From Above working Average Cost 25.8027 Tent value/No of tents Ending inventory amount 1419.1507 55*25.8027 Cost of goods sold 7998.8493 310*25.8027 FIFO Cost: Since ending inventory is 55 and under FIFO, inventory has to be from latest purchase, hence: 37 @ 28 Latest Purchase 18 @ 27 Balance (55-37) from second last purchase Ending inventory amount 1522.0000 (37*18)+(18*27) Cost of goods sold 7896.0000 Total 9418-Inventory value 1522 LIFO Cost: Since ending inventory is 55 and under LIFO, inventory has to be from first purchase, hence: 55 @ 23 First Purchase Ending inventory amount 1265.0000 55*23 Cost of goods sold 8153.0000 Total 9418-Inventory value 1265 2. Why COGS is higher under LIFO: Since cost of tents are in increasing trend and under LIFO COGS should be from latest purchase, cost is high under LIFO 3. Swat Team Income Statement: Sales Revenue 16430 310*53 Less: COGS 7998.837 310*25.8027 (Average Costing) Gross Profit 8431.163 Less: Operating Exp 3000 Profit Before Taxes 5431.163 Tax32% 1737.97216 5431*32% Less:Net Income 3693.19084
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