Question

Problem 5-8A Periodic: Income comparisons and cost flows LO A1, P1 QP Corp. sold 5,490 units of its product at $45.10 per unit during the year and incurred operating expenses of $6.10 per unit in selling the units. It began the year with 610 units in inventory and made successive purchases of its product as follows. Jan. 1 Beginning inventory Feb. 20 Purchase May 16 Purchase Oct. 3 Purchase Dec. 11 Purchase Total 610 units @ $18.10 per unit 1,510 units @ $19.10 per unit 710 units @ $20.10 per unit 410 units @ $21.10 per unit 3,310 units @ $22.10 per unit 6,550 units Required: 1. Prepare comparative income statements for the three inventory costing methods of FIFO, LIFO, and weighted average which includes a detailed cost of goods sold section as part of each statement. The company uses a periodic inventory system, and its income tax rate is 35%. (Round your average cost per unit to 2 decimal places.)

Answer 1

Ans. QP CORP. Income Statement Comparing FIFO, LIFO and Weighted Average For the Year Ended December 31 FIFO LIFO Weighted Average Sales $247,599 $247,599 $247,599 Cost of goods sold: Beginning inventory, Jan. 1 $11,041 $11,041 $11,041 Cost of purchases $ 124,914 $124,914 $124,914 Cost of goods available for sale $135,955 $135,955 $135,955 Less: Inventory, Dec. 31 $23,426 $19,636 -$22,002 Cost of goods sold $112,529 $116,319 $113,953 Gross profit $135,070 $131,280 $133,646 Operating expenses -$33,489 -$33,489 -$33,489 Income before taxes (a) $101,581 $97,791 $100,157 Income tax expenses (a*0.35) -$35,553 -$34,227 -$35,055 Net income $66,028 $63,564 $65,102 *Working Notes: Step 1: Calculations of Sales: Sales = Units sold * Selling price 5,490 * $45.10 $247,599

Step 2: Calculations of Operating expenses: Operating expenses = Units sold * Expenses per unit 5,490 * $6.10 $33,489 Step 3: Calculations of Ending inventory: Ending inventory units = Total units avaialble - Units sold 6,550 -5,490 = 1,060 1 FIFO: Cost of goods available for sale Units Rate Total 610 $18.10 $11,041 Cost of goods sold - Periodic FIFO Units Rate Total 610 $18.10 $11,041 Ending inventory - Periodic FIFO Units Rate Total 0 $18.10 $0 $0 Beginning inventory Purchases: 20-Feb 16-May 03-Oct 11-Dec Total $0 1510 710 410 3310 6550 $19.10 $20.10 $21.10 $22.10 $28,841 $14,271 $8,651 $73,151 $135,955 1510 710 410 2250 5490 $19.10 $20.10 $21.10 $22.10 $28,841 $14,271 $8,651 $49,725 $112,529 O 0 1060 1060 $19.10 $20.10 $21.10 $22.10 $0 $23,426 $23,426 *In FIFO method the units that have purchased first, are released the first one and the ending inventory units remain from the last purchases.

2 LIFO: Cost of goods available for sale Units Rate Total 610 $11,041 Cost of goods sold - Periodic LIFO Units Rate Total $18.10 So Ending inventory - Periodic LIFO Units Rate Total 610 $18.10 $11,041 $8,595 Beginning inventory Purchases: 20-Feb 16-May 03-Oct 11-Dec Total 450 0 1510 710 410 3310 6550 $0 $19.10 $20.10 $21.10 $22.10 1060 710 410 $28,841 $14,271 $8,651 $73,151 $135,955 $19.10 $20.10 $21.10 $22.10 $20,246 $14,271 $8,651 $73,151 $116,319 $19.10 $20.10 $21.10 $22.10 $0 $0 3310 5490 O 1060 $19,636 *In LIFO method the units that have purchased last, are released the first one and ending inventory units remain from the first purchase. Weighted Average cost: Cost of goods available for sale Units Rate Total 610 $18.10 $11,041 Cost of goods sold - Periodic Average cost Units Rate Total Ending inventory - Periodic Average cost Units Rate Total 1510 Beginning inventory Purchases: 20-Feb 16-May 03-Oct 11-Dec Total 710 $19.10 $20.10 $21.10 $22.10 410 3310 6550 $28,841 $14,271 $8,651 $73,151 $135,955 5490 $20.76 $113,953 1060 $20.76 $22,002 Average cost per unit = Total cost of goods available for sale / Units available for sale $135,955 / 6,550 $20.76 per unit