Question

Stewart Distributing Company sells a single product for $3.40 per unit and uses a periodic inventory system. The following data are available for the year:

Date	Transaction	Number of Units	Unit Cost	Total
1/1	Beginning inventory	500	$1.70	$850
2/5	Purchase	400	1.80	720
4/12	Sale	(600)
7/17	Sale	(300)
9/23	Purchase	450	2.00	900
11/5	Sale	(234)

Required:

1.	Compute cost of goods sold assuming the use of the weighted average costing method.
2.	Compute the dollar amount of ending inventory assuming the FIFO costing method.
3.	Compute gross profit assuming the LIFO costing method.
4.	Assume a 40% tax rate. Compute the amount of taxes saved if Stewart uses the LIFO method rather than the FIFO method.

Answer 1

Answer 1.

Cost of Goods available for sale = 500 * $1.70 + 400 * $1.80 + 450 * $2.00
Cost of Goods available for sale = $2,470

Number of units available for sale = 500 + 400 + 450
Number of units available for sale = 1,350

Cost per unit = Cost of Goods available for sale / Number of units available for sale
Cost per unit = $2,470 / 1,350
Cost per unit = $1.83

Number of units sold = 600 + 300 + 234
Number of units sold = 1,134

Cost of Goods Sold = 1,134 * $1.83
Cost of Goods Sold = $2,075.22

Answer 2.

Number of units available for sale = 1,350
Number of units sold = 1,134

Number of units in ending inventory = Number of units available for sale - Number of units sold
Number of units in ending inventory = 1,350 - 1,134
Number of units in ending inventory = 216

Cost of Ending Inventory = 216 * $2.00
Cost of Ending Inventory = $432.00

Answer 3.

Sales Revenue = 1,134 * $3.40
Sales Revenue = $3,855.60

Cost of Goods Sold = 450 * $2.00 + 400 * $1.80 + 284 * $1.70
Cost of Goods Sold = $2,102.80

Gross Profit = Sales Revenue - Cost of Goods Sold
Gross Profit = $3,855.60 - $2,102.80
Gross Profit = $1,752.80

Answer 4.

LIFO:

Gross Profit = $1,752.80

Taxes = 40% * $1,752.80
Taxes = $701.12

FIFO:

Cost of Goods Sold = 500 * $1.70 + 400 * $1.80 + 234 * $2.00
Cost of Goods Sold = $2,038.00

Gross Profit = Sales Revenue - Cost of Goods Sold
Gross Profit = $3,855.60 - $2,038.00
Gross Profit = $1,817.60

Taxes = 40% * $1,817.60
Taxes = $727.04

Taxes saved = $727.04 - $701.12
Taxes saved = $25.92