Question

In: Accounting

Scrappers Supplies tracks the number of units purchased and sold throughout each accounting period but applies...

Scrappers Supplies tracks the number of units purchased and sold throughout each accounting period but applies its inventory costing method at the end of each period, as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the annual accounting period, December 31.

Transactions   Units Unit Cost
  Beginning inventory, January 1 200 $ 38
  Transactions during the year:
  a. Purchase on account, March 2 350 40
  b. Cash sale, April 1 ($54 each) (350 )
  c. Purchase on account, June 30 250 44
  d. Cash sale, August 1 ($54 each) (70 )

TIP: Although the purchases and sales are listed in chronological order, Scrappers determines the cost of goods sold after all of the purchases have occurred.

Required:
1.

Compute the cost of goods available for sale, cost of ending inventory, and cost of goods sold at December 31 under each of the following inventory costing methods: (Round "Cost per Unit" to 2 decimal places.)

a. Last-in, first-out.
b. Weighted average cost.
c. First-in, first-out.
d.

Specific identification, assuming that the April 1 sale was selected one-fifth from the beginning inventory and four-fifths from the purchase of March 2. Assume that the sale of August 1 was selected from the purchase of June 30.

2-a.

Of the four methods, which will result in the highest gross profit?

Last-in, first-out
Weighted average cost
First-in, first-out
Specific identification
2-b.

Of the four methods, which will result in the lowest income taxes?

Last-in, first-out
Weighted average cost
First-in, first-out
Specific identification

Solutions

Expert Solution

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Part 1
LIFO Weighted Average FIFO Specific Ident
Beginning Inventory 200*$38 $    7,600 200*$38 $                      7,600 200*$38 $    7,600 200*$38 $    7,600
Add: Purchase
350*$40 $ 14,000 350*$40 $                    14,000 350*$40 $ 14,000 350*$40 $ 14,000
250*$44 $ 11,000 250*$44 $                    11,000 250*$44 $ 11,000 250*$44 $ 11,000
Cost of Goods Available for Sale $ 32,600 $                    32,600 $ 32,600 $ 32,600
Average Rate (Weighted Average) $32,600/800 Units)
$                      40.75
Cost of Goods Sold:
250*$44 $ 11,000 420*$40.75 $                    17,115 200*$38 $    7,600 (70*$38)+(280*$40) $ 13,860
170*$40 $    6,800 220*$40 $    8,800 70*$44 $    3,080
Total Cost of Goods Sold $ 17,800 $                    17,115 $ 16,400 $ 16,940
Ending Inventory
200*$38 $    7,600 380*$40.75 $                    15,485 130*$40 $    5,200 130*$38 $    4,940
180*$40 $    7,200 250*$44 $ 11,000 70*$40 $    2,800
180*$44 $    7,920
Ending Inventory $ 14,800 $                    15,485 $ 16,200 $ 15,660
Part 2a
First-in, First out
(Since COGS is lowest in this case)
Part 2b
Last-in, First out
(Since COGS is highest in this case, and hence lower profit and lower tax)

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