Question

Orion Iron Corp. tracks the number of units purchased and sold throughout each year but applies its inventory costing method at the end of the year, as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the annual accounting period, December 31. Transactions Units Unit Cost

a. Inventory, Beginning 300 units $ 12 unit cost

For the year:

b. Purchase, April 11 900 Units 10 unit cost

c. Purchase, June 1 800 Units 13 unit cost

d. Sale, May 1 (sold for $40 per unit)    300 units

e. Sale, July 3 (sold for $40 per unit) 600 Units

f. Operating expenses (excluding income tax expense), $19,500

Required:

1. Calculate the number and cost of goods available for sale.

2. Calculate the number of units in ending inventory.

3. Compute the cost of ending inventory and cost of goods sold under (a) FIFO, (b) LIFO, and (c) weighted average cost.

4. Prepare an income statement that shows under the FIFO method, LIFO method and weighted average method.

6. Which inventory costing method minimizes income taxes?

Answer 1