Question 4 Inventories Purchases and Sales Quarter Units Uni

Question 4

Inventories

Purchases and Sales

Quarter

Units

Unit Cost

Total Cost

50,000

$115,000

40,000

96,000

40,000

100,000

60,000

162,000

190,000

$473,000

FIFO

LIFO

LINK TO TEXT

Question 4 The management of Gresa Inc. is reevaluating the appropriateness of using its present inventory cost flow method, which is average-cost. The company requests your help in determining the results of operations for 2017 if either the FIFO or the LIFO method had been used. For 2017, the accounting records show these data: Inventories Purchases and Sales Beginning (8,000 units) $16,000 Total net sales (181,000 units) $850,700 Ending (17,000 units) Total cost of goods purchased (190,000 units) 473,000 Purchases were made quarterly as follows. Quarter Units Unit Cost Total Cost 1 50,000 $2.30 $115,000 2 40,000 2.40 96,000 3 40,000 2.50 100,000 4 60,000 2.70 162,000 190,000 $473,000 Operating expenses were $150,000, and the company’s income tax rate is 30%.

Solution

FIFO LIFO Sales revenue 850700 850700 Beginning inventory 16000 16000 Cost of goods purchased 473000 473000 Cost of goods available for sale 489000 489000 Ending inventory (17000*2.70) 45900 36700 (16000+9000*2.3) Cost of goods sold 443100 452300 Gross profit 407600 398400 Operating expense 150000 150000 Income before taxes 257600 248400 Income tax expense 77280 74520 Net income 180320 173880