Question

FIFO –LIFO

The Inventory Company has provided you with three months of their inventory and purchases for the last three months:

Date	Item	Quantity	Unit Price
July 1	Begin Inventory	2,500	$38
July 15	Purchase	3,300	$37
July 29	Purchase	5,500	$36
Aug 11	Purchase	4,100	$36
Aug 30	Purchase	6,700	$35
Sept 14	Purchase	3,900	$34

During three months the company sold 23,200 units.Selling price is $78 and the company’s tax rate is 32%.

Required:

A.Complete the worksheet for FIFO, LIFO and the income statement for the above information – similar to the example we completed in class and also posted on the Excel worksheet created during this week’s class.

Example --- Worksheet for FIFO and LIFO

Date	Item	Qty	Unit $	Total $		End Inventory	CGS

B.Complete the required income statement comparison

	FIFO	LIFO
Sales $$
CGS (Cost of Goods Sold)
Gross Profit
Sales Tax
Profit after Taxes

C.Explain which method you would recommend that the company should use and explain the reason for your decision.

Answer 1

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Part A:							FIFO				LIFO
Date	Item	Qty	Unit $	Total $			End Inventory	CGS			End Inventory	CGS
Jul 1	Begin Inventory	2500	$                38.00	$         95,000				$       95,000		2500*38	$            95,000	$             -
Jul 15	Purchase	3300	$                37.00	$       122,100				$     122,100		300*37	$      11,100.00	$ 111,000
Jul 29	Purchase	5500	$                36.00	$       198,000				$     198,000				$ 198,000
Aug 11	Purchase	4100	$                36.00	$       147,600				$     147,600				$ 147,600
Aug 30	Purchase	6700	$                35.00	$       234,500				$     234,500				$ 234,500
Sep 14	Purchase	3900	$                34.00	$       132,600		2800*34	$            95,200	$       37,400				$ 132,600
		26000		$       929,800			$            95,200	$     834,600			$          106,100	$ 823,700
Sold		23200
Ending Inventory		2800
Part B:
		FIFO	LIFO
Sale	23200*78	$       1,809,600	$       1,809,600
Less: Cogs of Goods Sold		$           834,600	$           823,700
Gross Margin		$           975,000	$           985,900
Less Tax	32%	$           312,000	$           315,488
Net Income		$           663,000	$           670,412
Part C:
if think financial perspective, should follow FIFO, wherein higher COGS bringing GM down and hence low tax liability