Answer:
Part 1.
Number = 2,000 units and Cost = $26,800
Part 2.
1,040 units
Part 3.
a. FIFO
Ending Inventory = $14,580
Cost of Goods Sold = $12,220
b. LIFO
Ending Inventory = $13,180
Cost of Goods Sold = $13,620
c. Weighted Average Cost
Ending Inventory = $13,936
Cost of Goods Sold = $12,864
Part 4.
Orion Iron Corp.
Income Statement
FIFO LIFO Weighted Average
Sales (960 x $42) $40,320 $40,320 $40,320
Less Cost of Sales ($12,220) ($13,620) ($12,864)
Gross Profit $28,100 $26,700 $27,456
Less Expenses
Operating Expenses ($18,000) ($18,000) ($18,000)
Net Income $10,100 $8,700 $9,456
Part 6.
Weighted Average method minimizes Income taxes as it provides lowest profits than the rest of the methods.
Explanation:
Periodic Inventory method ensures that Cost of Sales and Inventory Value are determined at the end of the period.
Cost of Goods Available for Sale = Beginning Inventory + Purchases
therefore,
Number = 350 + 950 + 700 = 2,000 units
Cost = 350 x $14 + 950 x $12 + 700 x $15 = $26,800
Units in Ending Inventory = Units available for sale - Units sold
therefore,
Units in Ending Inventory = 2,000 - ( 350 + 610 ) = 1,040
FIFO
<em>This method assumes that the units to arrive first, will be sold first.</em>
Ending Inventory = 340 x $12 + 700 x $15 = $14,580
Cost of Goods Sold = 350 x $14 + 610 x $12 = $12,220
LIFO
<em>This method assumes that the units to arrive last, will be sold first.</em>
Ending Inventory = 690 x $12 + 350 x $14 = $13,180
Cost of Goods Sold = 700 x $15 + 260 x $12 = $13,620
Weighted Average Cost
This method calculates a new unit cost based on units available for sale after each and every purchase. This unit cost is then used to determine the cost of sales and inventory value.
Unit Cost = Total Cost ÷ Units available for sale
= $26,800 ÷ 2,000 units
= $13.40
Ending Inventory = Units in Inventory x Unit Cost
= 1,040 x $13.40
= $13,936
Cost of Goods Sold = Units Sold x Unit Cost
= 960 x $13.40
= $12,864
