Question

UNICAP rules. At the end of its first year, XYZ held 280 units in inventory. In its second year of operations, XYZ manufactured 2,800 units of product and incurred $462,000 direct material cost and $238,000 direct labor costs. For financial statement purposes, XYZ capitalized $102,000 indirect costs to inventory. For tax purposes, it had to capitalize $156,000 indirect costs to inventory under the UNICAP rules. At the end of its second year, XYZ held 420 items in inventory.

1. Compute XYZ’s cost of goods sold for book purposes and for tax purposes for second year assuming that XYZ uses the FIFO costing convention.
2. Compute XYZ’s cost of goods sold for book purposes and for tax purposes for second year assuming that XYZ uses the LIFO costing convention.

Answer 1

Answer-

1)Unit sold in year 2 : Beginning inventory+ unit produced -ending inventory

                           = 280 +2800 -420

                            = 2660 units

Under FIFO units acquired first are sold first .

current period cost : Total current cost *unit sold from current period /Total units produced in current period

	Book	Tax
Beginning (280 units)	79200	85400
Current period production (2660-280 beginning) = 2380)	802000*2380/2800 681700	856000*2380/2800 727600
cost of goods sold	760900	813000

2)

under LIFO,units acquired last are sold first .

	Book	Tax
Current period production (2660units)	802000*2660/2800 761900	856000*2660/2800 813200
cost of goods sold	761900	813200