Question

Navy Seals Surplus began March 2018 with 80 stoves that cost $10 each. During the month, the company made the following purchases at cost: (Click the icon to view the purchases.) The company sold 240 stoves, and at March 31, the ending inventory consisted of 60 stoves. The sales price of each stove was $49. Read the requirements. Requirement 1. Determine the cost of goods sold and ending inventory amounts for March under the average-cost, FIFO, and LIFO costing methods. Round the average cost per unit to two decimal places, and round all other amounts to the nearest dollar. Number of units Average cost 1 Cost of goods sold Ending inventory Requirements - X A Data Table - X March 6 $ 90 stoves @ 100 stoves @ 30 stoves @ 1. Determine the cost of goods sold and ending inventory amounts for March under the average-cost, FIFO, and LIFO costing methods. Round the average cost per unit to two decimal places, and round all other amounts to the nearest dollar. 2. Explain why cost of goods sold is highest under LIFO. Be specific. 3. Prepare the Navy Seals Surplus income statement for March. Report gross profit. Operating expenses totaled $5,200. The company uses average costing for inventory. The income tax rate is 36%. $20 = $25 = $30 = 1,800 2,500 900 Print Done Print Done

Answer 1

1. Cost of goods sold and ending inventory under:

a. Average cost method

In average cost method, the average cost will be calculated as total cost of goods available for sales divided by the total units of goods available for sale. Goods available for sales are opening inventory and units purchased during the year.

Average cost =  total cost of goods available for sales / total units of goods available for sale

Average cost = ((80*10)+(90*20)+(100*25)+(30*30))/(80+90+100+30) = $20 per stove

Cost of goods sold = Units sold * Average cost = 240*20 = $4,800

Cost of ending inventory = 60*20 = $1,200

b. FIFO Method

In FIFO method, the units which are purchased first are sold out first and units which are purchased last are sold out last. In this example, total 240 units are sold. As per FIFO method, 240 units sold consists of 80 from opening inventory, 90 from purchase on 6 March and balance 70 units are out of 100 units purchased on 18 March.

And closing inventory of 60 units will be 30 out of 18 March purchases and 30 of 26 March purchases.

Cost of goods sold = (80*10)+(90*20)+(70*25) = $4,350

Cost of ending inventory = (30*25)+(30*30) = $1,650

c. LIFO method

In LIFO method, the units which are purchased last are sold out first and units which are purchased first are sold out last. In this example, total 240 units are sold. As per LIFO method, 240 units sold consists of 30 from purchase on 26 March, 100 from purchase on 18 March, 90 from purchase on 6 March and balance 20 units are from opening inventory.

And closing inventory of 60 units will be all out of the opening inventory.

Cost of goods sold = (30*30)+(100*25)+(90*20)+(20*10) = $5,400

Cost of ending inventory = (60*10) = $600

Question 2

In LIFO method, the units which are purchased last are sold out first and units which are purchased first are sold out last. Therefore, the units remaining in the closing inventory will be always old items in the inventory. In this example, it seems there is any inflation situation and cost of units purchase at the later date are higher. The units sold are of latest purchase, so the cost of goods sold is higher under the LIFO method.

Question 3

Income Statement Sales (240*49) Less: Cost of goods sold (Average cost mel Gross profit Less: Operating expenses Net profit before tax Less: Tax @ 36% Net income 11,760 (4,800) 6,960 (5,200)| 1,760 (634) 1,126