P6-4B The management of Weigel Inc. asks your help in determıning the compal tive effects of the FIFO and LIFO inventory cost flow methods. For 2014 the accounting records show these data. $ 16,000 470,500 Inventory, January 1 (4,000 units) Cost of 105,000 units purchased Selling price of 100,000 units sold Operating expenses 900,000 185,000 Units purchased consisted of 35,000 units at $4.21 on March 20; 65,000 units at $4.60 on July 24; and 5,000 units at $4.83 on December 12. Income taxes are 30%. Instructions (a) Prepare compårative condensed income statements for 2014 under FIFO and LIFO. (Show computations of ending inventory.) (b) - (1) Which inventory cost flow method produces the most meaningful inventory amount for the balance sheet? Why? (2) Which inventory cost flow method produces the most meaningful net income? Why? (3) Which inventory cost flow method is most likely to approximate the actual physical flow of the goods? Why? (4) How much more cash will be available under LIFO than under FIFO? Why? (5) How much of the gross profit under FIFO is illusionary in comparison with the gross profit under LIFO? Answer the following questions for management in the form of a business letter.

P6-4B The management of Weigel Inc. asks your help in determıning the compal tive effects of the FIFO and LIFO inventory cost flow methods. For 2014 the accounting records show these data. $ 16,000 470,500 Inventory, January 1 (4,000 units) Cost of 105,000 units purchased Selling price of 100,000 units sold Operating expenses 900,000 185,000 Units purchased consisted of 35,000 units at $4.21 on March 20; 65,000 units at $4.60 on July 24; and 5,000 units at $4.83 on December 12. Income taxes are 30%. Instructions (a) Prepare compårative condensed income statements for 2014 under FIFO and LIFO. (Show computations of ending inventory.) (b) - (1) Which inventory cost flow method produces the most meaningful inventory amount for the balance sheet? Why? (2) Which inventory cost flow method produces the most meaningful net income? Why? (3) Which inventory cost flow method is most likely to approximate the actual physical flow of the goods? Why? (4) How much more cash will be available under LIFO than under FIFO? Why? (5) How much of the gross profit under FIFO is illusionary in comparison with the gross profit under LIFO? Answer the following questions for management in the form of a business letter.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter6: Cost Of Goods Sold And Inventory

Section: Chapter Questions

Problem 50E: Inventory Costing Methods Crandall Distributors uses a perpetual inventory system and has the...

See similar textbooks

Similar questions

Calculate the cost of goods sold dollar value for A67 Company for the month, considering the following transactions under three different cost allocation methods and using perpetual inventory updating. Provide calculations for weighted average (AVG).
Calculate the cost of goods sold dollar value for A66 Company for the month, considering the following transactions under three different cost allocation methods and using perpetual inventory updating. Provide calculations for last-in, first-out (LIFO).
Inventory Costing Methods Crandall Distributors uses a perpetual inventory system and has the following data available for inventory, purchases, and sales for a recent year. Required: 1. Compute the cost of ending inventory and the cost of goods sold using the specific identification method. Assume the ending inventory is made up of 40 units from beginning inventory, 30 units from Purchase 1, 80 units from Purchase 2, and 40 units from Purchase 3. 2. Compute the cost of ending inventory and cost of goods sold using the FIFO inventory costing method. 3. Compute the cost of ending inventory and cost of goods sold using the LIFO inventory costing method. 4. Compute the cost of ending inventory and cost of goods sold using the average cost inventory costing method. ( Note: Use four decimal places for per-unit calculations and round all other numbers to the nearest dollar.) 5. CONCEPTUAL CONNECTION Compare the ending inventory and cost of goods sold computed under all four methods. What can you conclude about the effects of the inventory costing methods on the balance sheet and the income statement?
LIFO and Inventory Pools On January 1, 2016, Grover Company changed its inventory cost flow method to the LIFO cost method from the FIFO cost method for its raw materials inventory. It made the change for both financial statement and income tax reporting purposes. Grover uses the multiple-pools approach under which it groups substantially identical raw materials into LIFO inventory pools. It uses weighted average costs in valuing annual incremental layers. The composition of the December 31, 2018, inventory for the Class F inventory pool is as follows: Inventory transactions for the Class F inventory pool during 2019 were as follows: On March 2, 2019, 4,800 units were purchased at a unit cost of 13.50 for 64,800. On September 1, 2019, 7,200 units were purchased at a unit cost of 14.00 for 100,800. A total of 15,000 units were used for production during 2019. The following transactions for the Class F inventory pool took place during 2020: On January 11, 2020, 7,500 units were purchased at a unit cost of 14.50 for 108,750. On May 14, 2020, 5,500 units were purchased at a unit cost of 15.50 for 85,250. On December 29, 2020, 7,000 units were purchased at a unit cost of 16.00 for 112,000. A total of 16,000 units were used for production during 2020. Required: 1. Prepare a schedule to compute the inventory (units and dollar amounts) of the Class F inventory pool at December 31, 2019. Show supporting computations in good form. 2. Prepare a schedule to compute the cost of Class F raw materials used in production for the year ended December 31, 2019. 3. Prepare a schedule to compute the inventory (units and dollar amounts) of the Class F inventory pool at December 31, 2020. Show supporting computations in good form.
Calculate a) cost of goods sold, b) ending inventory, and c) gross margin for A76 Company, considering the following transactions under three different cost allocation methods and using perpetual inventory updating. Provide calculations for last-in, first-out (LIFO).
Calculate the cost of goods sold dollar value for A74 Company for the sale on March 11, considering the following transactions under three different cost allocation methods and using perpetual inventory updating. Provide calculations for (a) first-in, first-out (FIFO); (b) last-in, first-out (LIFO); and (c) weighted average (AVG).
Calculate the cost of goods sold dollar value for B74 Company for the sale on November 20, considering the following transactions under three different cost allocation methods and using perpetual inventory updating. Provide calculations for (a) first-in, first-out (FIFO); (b) last-in, first-out (LIFO); and (c) weighted average (AVG).
Refer to the information for Morgan Inc. above. If Morgan uses a perpetual inventory system, what is the cost of ending inventory under FIFO at April 30? a. $32,500 b. $38,400 c. $63,600 d. $69,500
The following data pertain to 2012 activities of Twisp Industries: Use your completed worksheet to determine the firms cost of goods sold for 2012. Remember to change the year in row 24 and to enter new beginning inventory balances. Save the 2012 file as MFG3. Print the worksheet when done. If sales and other expenses were identical in 2011 and 2012, during which year did Twisp earn more income? Why?
Comparison of Inventory Costing Methodsâ€”Periodic System Bitten Companys inventory records show 600 units on hand on October 1 with a unit cost of $5 each. The following transactions occurred during the month of October: All expenses other than cost of goods sold amount to $3,000 for the month. The company uses an estimated tax rate of 30% to accrue monthly income taxes. Required Prepare a chart comparing cost of goods sold and ending inventory using the periodic system and the following costing methods: What does the Total column represent? Prepare income statements for each of the three methods. Will the company pay more or less tax if it uses FIFO rather than LIFO? How much more or less?
Use the last-in, first-out (LIFO) cost allocation method, with perpetual inventory updating, to calculate (a) sales revenue, (b) cost of goods sold, and c) gross margin for A75 Company, considering the following transactions.