Question

Compute the Earning After Tax using both FIFO & LIFO inventory evaluation methods from the following data:

Revenue is assumed at 500 units that sell for $300.00 per unit
Cost of sales
Beginning inventory	200 units @$55.00 per unit
Purchase of	250 units @ $65.00 per unit
Purchase of	210 units @ $70.00 per unit
Purchase of	90 units @$75.00 per unit
Ending inventory	???? units ( not a mistake you must determine what the ending dollar inventory and units are)
Operating expenses	$8,750.00
Income tax rate	20% of Gross Profit

Answer 1

FIFO :

500 units are sold. Out of these, 200 are from opening inventory, 250 from the first purchase, and 50 from the second purchase

Cost of sales = opening + purchases - closing = 11000 + 37700 - 17950 = 30750

revenue = units sold * rate per unit = 500 * 300 = 150000

gross profit = revenue - cost of sales = 150000 - 30750 = 119250

earnings before tax = gross profit - operating expenses = 119250 - 8750 = 110500

tax = 20% of gross profit = 20% of 119250 = 23850

earnings after tax = earnings before tax - tax = 110500 - 23850 = 86650

FIFO :

500 units are sold. Out of these, 90 are from the third purchase, 210 from the second purchase and 200 from the first purchase

Cost of sales = opening + purchases - closing = 11000 + 37700 - 14250 = 34450

revenue = units sold * rate per unit = 500 * 300 = 150000

gross profit = revenue - cost of sales = 150000 - 34450 = 115550

earnings before tax = gross profit - operating expenses = 115550 - 8750 = 106800

tax = 20% of gross profit = 20% of 115550 = 23110

earnings after tax = earnings before tax - tax = 106800 - 23110 = 83690