Question

Required information [The following information applies to the questions displayed below. Broadhead Company uses a periodic inventory system. At the end of the annual accounting period, December 31 of the current year, the accounting records provided the following information for product 2: Units 2,860 Unit Cost $ 14 12 Inventory, December 31, prior year For the current year: Purchase, April 11 Purchase, June 1 Sales ($51 each) Operating expenses (excluding income tax expense) 8,870 7,980 10,830 $186,500 2. Compute the difference between the pretax income and the ending inventory amount for the two cases. Comparison of Amounts Case A Case B FIFO LIFO Difference Pretax income Ending inventory

Answer 1

The answer has been presented in the supporting sheet. For detailed answer refer to the supporting sheet.

Answer Firstly we have to calculate the units in ending inventory = total units - unit sold = (2860+8870+7980)-10830 = 8880 Units Cost of goods available for sale = no. of units * cost per unit = (2860*14)+(8870*12)+(7980*17) 1 = 282140 Cost of ending inventory FIFO = no. of units * cost per unit as FIFO = (7980*17)+(8880-7980) *12) = $ 146460 5 5 3 Cost of ending inventory LIFO = no. of units * cost per unit as LIFO = ( 2860*14)+(8880-2860)*12) 1 = $ 112280

Calculation of Pretax Income Product Product - Sales 552330 552330 Cost of goods sold 135680 169860 (282140-146460)|(282140-112280) Operating expenses 186500 186500 Pretax Income 230150 195970 Thus the final answer Case A FIFO Comparision of Amounts Case B LIFO Difference 230150 1 95970 34180 146460 1 12280 34180 Pretax Income Ending Inventory For any help please comment in the comment box