Question

ABC Company employs a periodic inventory system and sells its inventory to
customers for $32 per unit. ABC Company reported the following inventory
information for the month of May:

May 1    Beginning inventory 4,200 units @ $12 cost per unit
May 6    Purchased 2,000 units @ $9 cost per unit
May 8    Sold 3,000 units
May 13   Purchased 2,500 units @ $15 cost per unit
May 18   Sold 1,900 units
May 21   Purchased 4,000 units @ $8 cost per unit
May 28   Sold 2,200 units
May 30   Purchased 2,300 units @ $17 cost per unit

ABC Company reported operating expenses of $26,100 for May and they had a
tax rate of 34%.

A) Calculate the dollar amount of ending inventory shown on ABC Company's
May 31 balance sheet using the FIFO method.

B) Calculate the amount of gross profit shown on ABC Company's income statement
for May using the weighted average method.

C) Calculate the amount of net income shown on ABC Company's income statement
for May using the LIFO method.

Answer 1

Cost of Goods Available for sale

	Units	Unit Price	Amount
Beginning Inventory	4200	$    12.00	$      50,400.00
May 6 Purchase	2000	$      9.00	$      18,000.00
May 13 Purchase	2500	$    15.00	$      37,500.00
May 21 Purchase	4000	$      8.00	$      32,000.00
May 30 Purchase	2300	$    17.00	$      39,100.00
	15000		$   1,77,000.00

Sales units = 3000 + 1900 + 2200 = 7100 units
Ending Inventory = 15000 - 7100 = 7900 units

A) Under FIFO, ending inventory consists of most recent purchases since goods purchased first are sold first
Ending Inventory

	Units	Unit Price	Amount
May 30 Purchase	2300	$    17.00	$      39,100.00
May 21 Purchase	4000	$      8.00	$      32,000.00
May 13 Purchase	1600	$    15.00	$      24,000.00
	7900		$      95,100.00

B) Average Cost per unit = $177000 / 15000 = $11.80 per unit
Gross Profit = Sales - Cost of Goods Sold
= (7100 x $32) - (7100 x $11.80) = $143420

C) Under LIFO, ending inventory consists of earliest purchases

	Units	Unit Price	Amount
Beginning Inventory	4200	$    12.00	$      50,400.00
May 6 Purchase	2000	$      9.00	$      18,000.00
May 13 Purchase	1700	$    15.00	$      25,500.00
	7900		$      93,900.00

Cost of Goods Sold = Cost of Goods available - Ending Inventory
= $177000 - $93900 = $83100

Sales Revenue	$   2,27,200.00
Cost of Goods Sold	$       83,100.00
Gross Profit	$   1,44,100.00
Operating Expenses	$       26,100.00
Income before tax	$   1,18,000.00
Income tax @ 34%	$       40,120.00
Net Income	$       77,880.00