Question

"Elizabeth Egbert owns a galvanizing plant. Customers bring in their fabricated steel products (like light poles, towers, trailers, etc.), and Egbert dips them into a heated vat of molten zinc. The zinc bonds to the metal and produces a highly durable corrosion resistant product. " Egbert's primary inventory is molten zinc purchased from suppliers in large blocks of solid material. These blocks are immersed in the heated vat and will melt together with the zinc already in the pool. Egbert generally keeps the vat relatively full, and it is never allowed to cool. Egbert started the year 20X8 with 500,000 pounds of zinc in the pool. During the year Egbert purchased 2,800,000 pounds of zinc. At year's end, the pool contained 520,000 pounds of zinc.

Please answer A, C, E, F, G

(a) How much zinc was used during 20X8? (b) Accountants frequently refer to "goods available for sale." Is this concept the same as ending inventory? How much zinc, in pounds, was "available for sale?" (c) If the beginning inventory cost $1.25 per pound, and purchases during 20X8 cost $1.50 per pound, how much is the "cost of goods available for sale"? (e) If Egbert uses FIFO, how much should be attributed to ending inventory and how much to cost of goods sold? (f) If Egbert uses LIFO, how much should be attributed to ending inventory and how much to cost of goods sold? (g) What will be the difference in profitability between choosing the FIFO and LIFO methods? Does is seem reasonable the choice of accounting method can change the reported profit?

Answer 1

A.beginning balance +purchase -ending inventory =zinc used

=500,000+2800,000-520,000

=27,80,000 zinc used

C.COST OF GOOD AVAILABLE FOR SALE

Beginnig inventory in cost +purchase cost

=(500000*1.25)+(2800,000*1.50)

=625,000+4,200,000

=$4,825,000

E.FIFO is first in first out.the goods available in beginning inventory is sold first.

Purchase/beginning			Cost of goods dold			Inventory
Units	Cost	Total	unit	cost	Total	unit	Cost	total
500000	1.25	625,000
2,800,000	1.50	4,200,000
			500,000	1.25	625000
			2,280,000(2,780,000-500,000)	1.5	3420000	520,000	1.5	780,000
			Total		4,045,000

cost of goods sold= 4045000

inventory = 780000

(f)Lifo is last in first out ending inventory will have goods from beginning inventory.

Purchase/beginning			Cost of goods dold			Inventory
Units	Cost	Total	unit	cost	Total	unit	Cost	total
500000	1.25	625,000
2,800,000	1.50	4,200,000
			2,780,000)	1.5	4,170,000	500,000	1.25	625,000
						20000[2800000-2780000)	1.5	30000
			Total		4170000			655,000

cost of goods sold = 4170000

ending inventory = 655000

(g)difference in profitability = difference in cost of goods sold

=4170000-4045000

=125000$

LIFO will show lesser profits by 125000$ than FIFO.

Yes the accounting method affects the profitability due to difference in calculation of cost of goods sold and ending inventory.

when prices are rising the LIFO method will show less profti

when prices are decreasing the FIFO method will show less profit.