Question

The accounting records of Allen Insulation, Inc. reflected the following balances as of January 1, 20xx:

Cash	$36,000
Beginning Inventory	$24,000 (200 units @ $120)
Common Stock	$25,000
Retained Earnings	$35,000

The following transactions occurred in 20XX:

1. January 30^th : Purchase for cash 130 units @ $124 each

2. March 12th: Purchase for cash 220 units @ $128 each

3. June 3^rd : Sold 350 units for cash @ $320 each.

4. Paid $24,000 of operating expenses during the year.

5. Paid income tax in cash at the rate of 40 percent of income before tax.

Required:

Compute the cost of goods sold, ending inventory, gross profit, income tax expense and net profit for each of the cost flow assumptions:

• FIFO cost f
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  low
• LIFO cost flow
• Weighted-average cost flow

Use the following Excel template:  Inventory Template

Answer 1

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	Unit	Rate	Amount
Beginning Inventory	200	$            120	$      24,000
Jan 30 Purchase	130	$            124	$      16,120
Mar 12 Purchase	220	$            128	$      28,160
Cost of Goods available for sale	550		$      68,280
Weighted average Rate ($68,280/550)		$      124.15
Sale	350
Ending Inventory	200
Cost of Goods Sold:
	Cost of Goods Sold-FIFO			Cost of Goods Sold-LIFO			Cost of Goods Sold-WA
	Unit	Rate	Amount	Unit	Rate	Amount	Unit	Rate	Amount
Beginning Inventory	200	$            120	$      24,000	-	$        120	$            -
Jan 30 Purchase	130	$            124	$      16,120	130	$        124	$   16,120
Mar 12 Purchase	20	$            128	$        2,560	220	$        128	$   28,160
	350		$      42,680	350		$   44,280	350	$   124.15	$   43,451
Ending Inventory:
	Ending Inventory-FIFo			Ending Inventory-LIFO			Ending Inventory-WA
	Unit	Rate	Amount	Unit	Rate	Amount	Unit	Rate	Amount
Beginning Inventory			$               -	200	$        120	$   24,000
Jan 30 Purchase			$               -			$            -
Mar 12 Purchase	200	$            128	$      25,600			$            -
	200		$      25,600	200		$   24,000	200	$   124.15	$   24,829
Income Statement:
		FIFO	LIFO	WA
Sales (350 units*$320)		$   112,000	$   112,000	$   112,000
Less: Cost of goods sold		$   (42,680)	$   (44,280)	$   (43,451)
Gross Profit		$      69,320	$      67,720	$      68,549
Less: Operating Expense		$   (24,000)	$   (24,000)	$   (24,000)
Operating Income		$      45,320	$      43,720	$      44,549
Less: Income Tax 40%		$   (18,128)	$   (17,488)	$   (17,820)
Net Income		$      27,192	$      26,232	$      26,729