Question

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Air Force Surplus began July 2018 with 100 stoves that cost $15 each. During the month, the company made the following purchases at cost: (Click the icon to view the purchases.) The company sold 336 stoves, and at July 31, the ending inventory consisted of 64 stoves. The sales price of each stove was $45. Read the requirements. Requirement 1. Determine the cost of goods sold and ending inventory amounts for July under the average cost, FIFO, and LIFO costing methods. Round the average cost per unit to two decimal places, and round all other amounts to the nearest dollar. FIFO Cost of goods sold Ending inventory Number of units 336 $ 64'$ Average cost 8,400 1,600 Data Table - X A Requirements - X July 6 $ 120 stoves @ 130 stoves @ 50 stoves @ $25 = $30 = $32 = 3,000 3,900 1,600 Print Done 1. Determine the cost of goods sold and ending inventory amounts for July under the average-cost, FIFO, and LIFO costing methods. Round the average cost per unit to two decimal places, and round all other amounts to the nearest dollar. 2. Explain why cost of goods sold is highest under LIFO. Be specific. 3. Prepare the Air Force Surplus income statement for July. Report gross profit. Operating expenses totaled $3,750. The company uses average costing for inventory. The income tax rate is 40%.

Answer 1

1. Determination of Cost of Goods Sold under:

a) Average Cost Method:

Average Cost Per Unit = Total Cost of stoves/No.of stoves = ($1,500 + $3,000 + $3,900 + $1,600)/(100+120+130+50) = $25

Cost of Goods Sold = 336 stoves * $25 = $8,400

Ending inventory = 64 stoves * $25 = $1,600

  b) FIFO Method:

Cost of Goods Sold = (100 stoves * $15) + (120 stoves * $25) + (116 stoves * $30) = $7,980

Ending Inventory = (14 stoves * $30) + (50 stoves * $32) = $2020

c) LIFO Method:

Cost of Goods Sold = (50 stoves * $32) + (130 stoves * $30) + (120 stoves * $25) + (36 stoves * $15) = $9,040

Ending Inventory = (64 stoves * $15) = $960

2. In case of increasing price of goods, under LIFO method, the highest priced goods (stoves) are consumed first. Hence, the cost of goods sold is highest under LIFO.

3.

Air Force Surplus
Income Statement for July
Particulars	Amount($)
Sales (336 stoves * $45)	15,120
Less: Cost of Goods Sold (Average Cost Method)	(8,400)
Gross Profit	6,720
Less: Operating expenses	(3,750)
Net Income	2,970