Question

Following is partial information for the income statement of Audio Solutions Company under three different inventory costing methods, assuming the use of a periodic inventory system:
FIFO LIFO Average Cost
Cost of goods sold
Beginning inventory (400 units S28) $11,200 $11,200 11,200
Purchases (475 units $35) 16,625 16,625 16,625
Goods available for sale 17,825
Ending inventory (525 units)
Cost of goods sold

Required:
a. Compute cost of goods sold under the FIFO, LIFO, and average cost inventory costing methods.
b. Prepare an income statement through pretax income for each method. Sales, 307 units; unit sales price, $50; Expenses, $1,680
c. Rank the three methods in order of income taxes paid (favorable cash flow).

Answer 1

Answer:

The computation is shown below:-

Explanation:

1.                     FIFO    LIFO Average cost  

Cost of goods sold      

Beginning inventory       $11,200      $11,200  $11,200

(400 units ×  $28))                          

purchases                       $16,625    $16,625   $16,625

(475 units × 35)                  

Goods available for use $27,825    $27,825   $27,825  

Ending inventory             $18,025    $15,575    $16,695

(525 units)  

Cost of goods sold          $9,800    $12,250    $11,130  

under ending inventory = 475 × $35 + 50 × $28    

FIFO = $18,025  

LIFO ending inventory 400 × $28 + 125 × $35

= $15,575  

Average cost = $27,825 ÷ $875    

= 31.8      

Ending inventory = 525 × 31.8

= $16,695

2.                                  FIFO            LIFO         Average

Sales

(307 × $50)                $15,350         $15,350    $15,350

Cost of goods sold     $9,800    $12,250    $11,130

Gross Profit                 $5,550           $3,100      $4,220

Expenses                     $1,680           $1,680      $1,680

Net income                  $3,870           $1,420       $2,540

3. FIFO = 3

LIFO = 2

Average = 1