Question

1.  January 30th Purchase (cash) 130 units @ $124

2. March 12th Purchase (cash) 220 units @$128

3. June 3rd Sale (cash) 350 units @$320 Paid $24,000 of operating expenses.

4. Paid cash for income tax at the rate of 40 percent of income before tax.

Compute the cost of goods sold, ending inventory, gross profit, income tax expense and net profit assuming: FIFO cost flow LIFO cost flow Weighted-average cost flow. Using the following layout.

FIFO

Ending Inventory

Goods Available for Sale

Deduct ending Inventory

Cost of Goods Sold

Sales

Cost of Goods Sold

Gross Profit

Operating Expense

Operating Income before tax

Income Tax (40%)

Net Profit

Weighted Average Cost

LIFO

Ending Inventory

Goods Available for Sale

Deduct ending Inventory

Cost of Goods Sold

Sales

Cost of Goods Sold

Gross Profit

Operating Expense

Operating Income before tax

Income Tax (40%)

Net Profit

Answer 1

1. FIFO 2. LIFO Units Units | Ending Inventory : Particulars January - Purchase March - Purchase Total Inventory on Hand Less : June - Sale Ending Inventory 130 220 Ending Inventory : Particulars January - Purchase March - Purchase Total Inventory on Hand Less : June - Sale Ending Inventory 130 220 350 -350 350 -350 Units Units Cost of goods sold : Particulars Goods available for Sale Less : Ending Inventory Cost of goods sold Amount 44,280 350 Cost of goods sold : Particulars Goods available for Sale Less : Ending Inventory Cost of goods sold Amount $ 44,280 $ 350 350 $ 44,280 350 $ 44,280 Calculation 350 Units @ $ 320 From Above $ $ Particulars Sales Less : Cost of goods sold Gross Profit Less : Operating Expenses Operating Income before Tax Less : Income Tax @ 40 % Net Profit Amount 1,12,000 -44,280 67,720 -24,000 43,720 -17,488 26,232 Particulars Sales Less : Cost of goods sold Gross Profit Less : Operating Expenses Operating Income before Tax Less : Income Tax @ 40 % Net Profit Calculation L Amount | 350 Units @ $ 320 $ 1,12,000 From Above $ -44,280 67,720 Given $ -24,000 43,720 $ 43,720 * 40% $ -17,488 $ 26,232 Given $ $ 43,720 * 40% $ $ Under FIFO Method, the goods which are brought first are sold first. Therefore, for the sale in June, First the goods purchased in January and then purchased in March will be sold. Since, all the purchased goods are sold, the ending inventory is NIL. Under LIFO Method, the goods which are brought last are sold first. Therefore, for the sale in June, First the goods purchased in March and then purchased in January will be sold. Since, all the purchased goods are sold, the ending inventory is NIL.

3. Weighted - Average Units Ending Inventory : Particulars January - Purchase March - Purchase Total Inventory on Hand Less : June - Sale Ending Inventory 130 220 350 -350 $ $ $ Rate 124 128 127 127 $ $ $ $ Amount 16,120 28,160 44,280 -44,280 Units Cost of goods sold : Particulars Goods available for Sale Less : Ending Inventory Cost of goods sold 350 - 350 $ $ $ Rate / Amount 127 $ 44,280 - 127 $ 44,280 Particulars Sales Less : Cost of goods sold Gross Profit Less : Operating Expenses Operating Income before Tax Less : Income Tax @ 40 % Net Profit Calculation L Amount 350 Units @ $ 320 $ 1,12,000 350 Units @ $ 126.51 $ -44,280 67,720 Given -24,000 43,720 $ 43,720 * 40% -17,488 $ 26,232 Under Weighted Average Method, the cost of inventory is calculated by calculating the average of the cost and the units sold. Therefore, the average cost of goods is $ 126. 51 ($ 44,280 / 350 Units). Since, all the purchased goods are sold, the ending inventory is NIL.