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natta225 [31]
3 years ago
10

Assuming purchase costs are declining and a periodic inventory system is used, determine the statements below which correctly de

scribe what is happening to cost of goods sold under FIFO, LIFO and weighted average cost flow methods.
a. In a situation where prices are declining, companies using LIFO will report the smallest cost of goods sold.b. Companies using FIFO will report the smallest cost of goods sold (compared to companies using LIFO or weighted average.)c. Weighted average cost of goods sold will be between FIFO and LIFO costs of goods sold.d. Companies using LIFO will pay higher taxes than companies using FIFO, assuming all else being equal.e. Companies using FIFO will report the highest gross profit and net income.f. Companies using LIFO will report the highest ending inventory on their balance sheets (as compared to companies using FIFO or weighted average,)
Business
2 answers:
Sonbull [250]3 years ago
7 0

Answer:

a. In a situation where prices are declining, companies using LIFO will report the smallest cost of goods sold.

Explanation:

The last in first out method (LIFO) generally results in less net income because Cost of Goods Sold is greater. The reason is that normally prices increase with time due to inflation.

However, the opposite is true when prices are falling, LIFO will report the smallest cost of goods sold.

<u>The reason is the last items are assumed to be sold first, hence the figure of cost of goods sold will be smaller since the costs are smaller compared to the stock bought previously which are more expensive. </u>

sveta [45]3 years ago
6 0

Answer: B

Explanation: with a decline in purchase and periodic inventory system is used it's is assumed that LIFO ( last in first out) would report higher sales unlike FIFO

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Primera Company produces two products and uses a predetermined overhead rate to apply overhead. Primera currently applies overhe
pychu [463]

Answer:

Primera Company

1. Plantwide predetermined overhead rate:

= $1,536,000/768,000

= $2.00 per direct labor hour

Overhead assigned to each product:

                                   Product 1    Product 2

Direct labor hours     480,000        147,200

Predetermined overhead

 rate  = $2 per direct labor hour

Total overhead =    $960,000    $294,400

2. Predetermined departmental overhead rates:

Department 1:    

Direct labor hours $2 ($1,536,000/768,000)

Department 2

Machine hours = $7.385 ($1,536,000/208,000)

Overhead assigned:

Product 1 = $960,000 (480,000 * $2)

Product 2 = $70,896 (9,600 * $7.385)

3. The applied overhead for the year:

Department 1 = $1,254,400 (627,200 * $2)

Department 2 = $1,512,448 (204,800 * $7.385)

Total   =            $2,766,848

Overapplied overhead for the firm = $1,134,848 ($2,766,848 - $1,632,000)

4. Debit Manufacturing overhead $1,134,848

Credit Cost of goods sold $1,134,848

To transfer the overapplied overhead to cost of goods sold.

Additional information needed if the variance is material is to determine the percentages to allocated to Work in process, Finished Goods, and Cost of Goods Sold.

Explanation:

a) Data and Calculations:

Estimates:

                            Department 1   Department 2      Total  

Direct labor hours    640,000            128,000        768,000

Machine hours            16,000            192,000        208,000

Overhead cost       $384,000       $1,152,000    $1,536,000

Actual results:

                            Department 1   Department 2      Total  

Direct labor hours     627,200             134,400       761,600

Machine hours             17,600            204,800      222,400

Overhead cost       $400,000       $1,232,000  $1,632,000

                       Product 1 Product 2        Total  

Direct labor hours:

Department 1 480,000    147,200      627,200

Department 2  96,000     38,400       134,400

Machine hours:

Department 1    8,000        9,600         17,600

Department 2 24,800    180,000      204,800

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Answer:

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