Rrady Co. uses the periodic inventory system, and the following information abou

Question

Rrady Co. uses the periodic inventory system, and the following information about the company's football inventory is available Total Cost Cost per Unit $12.00 $14.00 S16.40 Date Transaction Units 11 Beginning Inventory 1,000 4,000 5,000 S12,000 $56.000 $82,000 4/22 Purchase 8/25 Purchase 10.000 150,000 During the year, 7.200 footballs were sold at $30 each. Compute the following (PLEASE SHOW YOUR WORK) A. Dollar value of ending inventory using First-in, first-out (FIFO) (2 points) B. Cost of goods sold using Last-in, first-out (LIFO) (2 points)

Explanation / Answer

a) Calculate Ending inventory under FIFO method :

Ending inventory unit = (10000-7200) = 2800 Unit

Ending inventory value = 2800*16.40 = 45920

b) Calculate Ending inventory under LIFO method :

Ending inventory unit = (10000-7200) = 2800 Unit

Ending inventory value = (1000*12+1800*14) = 37200

C) weighted average cost per unit :

Weighted average cost per unit = (150000/10000) = 15 per unit

d) Gross profit under FIFO :

Sales = (7200*30) = 216000

Cost of goods sold = (1000*12+4000*14+2200*16.40) = 104080

Gross profit = (216000-104080) = 111920

e) FIFO method gives higher inventory value than LIFO method so FIFO method cost of goods sold is lower then LIFO metthod.When cost of goods sold is lower on FIFO method it means FIFO method gives higher income before tax and so result is income tax would be higher under FIFO method.

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