Question

The following information is available concerning the inventory of Carter Inc.:

	Units	Unit Cost
Beginning inventory	206	$10
Purchases:
March 5	299	11
June 12	402	12
August 23	254	13
October 2	150	15

During the year, Carter sold 994 units. It uses a periodic inventory system.

Required:

1. Calculate ending inventory and cost of goods sold for each of the following three methods:

In your calculations round average unit cost to the nearest cent, and round all other calculations and your final answers to the nearest dollar.

Cost Flow Assumption	Ending Inventory	Cost of Goods Sold
a. Weighted average	$	$
b. FIFO	$	$
c. LIFO	$	$

2. Assume an estimated tax rate of 30%. How much more or less (indicate which) will Carter pay in taxes by using FIFO instead of LIFO?

Difference in taxes under FIFO vs. LIFO

$

Answer 1

1)weighted Average-

Particulars	Units	Unit Cost	Total Cost=Units * Cost per unit
Beginning inventory	206	10	2060
Purchases:
March 5	299	11	3289
June 12	402	12	4824
August 23	254	13	3302
October 2	150	15	2250
Total	1311		15725

Weighted Average rate per Unit = 15725 / 1311 = 11.99

Ending Inventory = Total Inventory - units sold = 1311 - 994 = 317units * 11.99 per unit = $3800

COGS = Units Sold * rate per Unit = 994 * 11.99 = $11918

2) FIFO Method

Units Sold= 994 Units
206 Units * $10	2060
299 Units * $11	3289
402 Units * $12	4824
87 Units * $13	1131
Total Units sold equals 994 Units
COGS	$11304
Ending Inventory= 317 Units
167 Units * $13	2171
150 Units * $15	2250
Ending Inventory Value	$4421

3) LIFO method

Units Sold= 994 Units
150 Units * $15	2250
254 Units * $13	3302
402 Units * $12	4824
188 Units * $11	2068
Total Units sold equals 994 Units
COGS	$12444
Ending Inventory= 317 Units
111 Units * $11	1221
206 Units * $10	2060
Ending Inventory Value	$3281

4)Higher Closing Inventory = Higher Profits =>>Higher Taxes   

Lower CLosing Inventory = Lower Profits =>> Lower Taxes

Closing Inventory In FIFO = $4421 & Closing Inventory In LIFO = $3281

Since Closing inventory in FIFO is more than in LIFO By $1140 , It results in more profit in FIFO & More tax will be paid in FIFO

Therefore $1140 * 30% = $342 Will be the tax difference between LIFO & FIFO.