Question

E7-7 Analyzing and interpreting the Financial Statement Effects of FIFO, LIFO, and Weighted Average Cost [LO 7-3) Scoresby Inc. tracks the number of units purchased and sold throughout each year but applies its inventory costing method at the end of the year, as if it uses a periodic Inventory system. Assume its accounting records provided the following information at the end of the annual accounting period. December 31 Unit Units Cost 1,500 $24 25 Transactions a. Inventory. Beginning For the year! b. Purchase, March 5 c. Purchase, September 19 d. Sale, April 15 (sold for $69 per unit) e. Sale, October 31 Bold for $72 per unit) 1. Operating expenses (excluding income tax expense). S406,000 27 7,500 3,500 2.400 6,500 Required: 1. Calculate the number and cost of goods available for sale. 2. Calculate the number of units In ending Inventory. 3. Compute the cost of ending Inventory and cost of goods sold under (a) FIFO, (b) LIFO, and (c) weighted average cost. 4. Prepare an Income statement that shows the FIFO method, LIFO method and weighted average method. 6. Which inventory costing method minimizes Income taxes? Complete this question by entering your answers in the tabs below. Required Required Required Required Required Calculate the number of units in ending inventory. Ending units Inventory Required 1 Required 3 >

Answer 1

As per below calculation we can see answer is different method as FIFO method, LIFO method and Average method because of as per FIFO method inventory to issued from first purchase whereas per LIFO method goods sales from last purchase per weighted average method material issued to production at Average cost of goods available .

1. Total number of units and cost for sales

	Units	Total Cost
As FIFO	12,500	$ 318,000
As LIFO	12,500	$ 318,000
As Weighted	12,500	$ 318,000

2. Ending inventory in units

Total units available for sales	12,500 units
Number of units sold	8,900 units
Ending Inventory	3,600 units

3. Cost of ending Inventory and Cost of goods sold.

	Ending Inventory	Cost of Goods sold
As FIFO	$ 97,000	$ 221,000
As LIFO	$ 88,500	$ 229,500
As Weighted	$ 91,584	$ 226,416

4. Income statement

April,15	2400 units * $ 69 per unit	$ 165,600
Oct. 31	6,500 units * $ 72 per unit	$ 468,000
	Total Sales	$ 633,000

Explanation	As per FIFO	As per FIFO	Weighted average
Total Sales revenue	$ 633,000	$ 633,000	$ 633,000
Less: Cost of Goods sold	$ 221,000	$ 229,500	$ 226,416
Gross profit	$ 412,000	$ 403,500	$ 406,584
Less: Operating expenses	$ 406,000	$ 406,000	$ 406,000
Net Profit	$ 6,000	($ 2,500)	$ 584

Additional

5. As per above calculation FIFO method is more preferable for net profit and tax basis.

FIFO ( Periodic method )
Transaction	Units	Cost per unit	Total
Beginning inventory	1,500	$ 24	$ 36,000
Purchase
March,5	7,500	$ 25	$ 187,500
September, 19	3,500	$ 27	$ 94,500
Goods available for Sales	12,500		$ 318,000
Cost of Goods Sold
From Beginning inventory	1,500	$ 24	$ 36,000
From Purchase March,5	7,400	$ 25	$ 185,000
Total cost of Goods sold	8,900		$ 221,000
Ending Inventory
From Purchase March,5	100	$ 25	$ 2,500
From Purchase September, 19	3,500	$ 27	$ 94,500
Total Ending Inventory	3,600		$ 97,000

LIFO ( Periodic method )
Transaction	Units	Cost per unit	Total
Beginning inventory	1,500	$ 24	$ 36,000
Purchase
March,5	7,500	$ 25	$ 187,500
September, 19	3,500	$ 27	$ 94,500
Goods available for Sales	12,500		$ 318,000
Cost of Goods Sold
From Purchase September, 19	3,500	$ 27	$ 94,500
From Purchase March,5	5,400	$ 25	$ 135,000
Total cost of Goods sold	8,900		$ 229,500
Ending Inventory
Beginning inventory	1,500	$ 24	$ 36,000
From Purchase March,5	2,100	$ 25	$ 52,500
Total Ending Inventory	3,600		$ 88,500

Weighted Average Cost ( Periodic method )
Transaction	Units	Cost per unit	Total
Beginning inventory	1,500	$ 24	$ 36,000
Purchase
March,5	7,500	$ 25	$ 187,500
September, 19	3,500	$ 27	$ 94,500
Goods available for Sales	12,500		$ 318,000
Cost of Goods Sold	8,900	$ 25.44	$ 226,416
Ending Inventory	3,600	$ 25.44	$ 91,584

       As per weighted average method goods to sold average cost of total

      inventory available for sales as a following solution.

Weighted average Cost per unit               = Total Cost of Goods available / No. Of units for sales               = $ 318,000 / 12,500 units               = $ 25.44 per units