Answer:
Transactions Units Unit Cost
a. Inventory, Beginning 300 $ 14
b. Purchase, April 11 950 12
c. Purchase, June 1 850 15
d. Sale, May 1 (sold for $42 per unit) 300
e. Sale, July 3 (sold for $42 per unit) 630
f. Operating expenses (excluding income tax expense), $18,200
1 and 2) When you use a periodic inventory method, cost of goods available for sale and ending inventory are the same. They differ only when you use a perpetual inventory.
ending inventory = 1,170 units
Ending inventory under FIFO:
$28,350 - $11,760 = $16,590
Ending inventory under LIFO:
$28,350 - $13,710 = $14,640
Ending inventory under weighted average:
$28,350 - $12,555 = $15,795
3) total units sold = 930 units
COGS under FIFO:
(300 x $14) + (630 x $12) = $11,760
COGS under LIFO:
(850 x $15) + (80 x $12) = $13,710
COGS under weighted average:
($28,350 / 2,100) x 930 = $12,555
4) Income statement under FIFO
Sales revenue $39,060
COGS <u>($11,760)</u>
Gross profit $27,300
Operating expenses <u>($18,200)</u>
Operating income $9,100
Income statement under LIFO
Sales revenue $39,060
COGS <u>($13,710)</u>
Gross profit $25,350
Operating expenses <u>($18,200)</u>
Operating income $7,150
Income statement under weighted average
Sales revenue $39,060
COGS <u>($12,555)</u>
Gross profit $26,505
Operating expenses <u>($18,200)</u>
Operating income $8,305
6) FIFO minimizes operating income, therefore, minimizes income tax expense.
