Question

REI carries the “Desert Rat” hiking boot whose sales are directed at Sonoran desert areas such as Arizona. The Scottsdale REI store uses a perpetual inventory system for tracking its inventory of boots. Its beginning inventory, purchases and sales for May are as follows.

                                                Units Sold        Unit

Date   Activity    Units Acquired at Cost        at Retail      Inventory

5/ 1   Beg Inv    10 Units @ $ 91 = $ 910                      10 Units

5/ 3   Purchase   15 Units @ $106 = $1,590                      25 Units

5/14   Sales                                   20 Units @$130    5 Units

5/17   Purchase   20 Units @ $115 = $2,300                      25 Units

5/28   Purchase   10 Units @ $119 = $1,190                      35 Units

5/31   Sales      ________                     23 Units @$150   12 Units

Goods Available

For Sale          55 Units

Units Sold                                  43 Units

Units in Ending Inventory                                      12 Units

Notice: Goods Available for Sale = Beginning Inventory + Purchases

1. Apply the FIFO method of inventory costing to calculate the dollar value of ending inventory and cost of goods sold. Clearly identify the ending inventory and cost of goods sold amounts.
2. Apply the LIFO method of inventory costing to calculate the dollar value of ending inventory and cost of goods sold. Clearly identify the ending inventory and cost of goods sold amounts
3. Complete the following Income Statement for REI. Assume that operating expenses are $500, and that the income tax rate is 30%.

4.    FIFO           LIFO

   Sales              __________     __________

   COGS               __________     __________

   Gross Profit        __________     __________

   Operating Expense   __________     __________

   Income Before Taxes __________     __________

   Income Taxes        __________     __________

   Net Income          __________     __________

Answer 1

	FIFO	LIFO
Sales ((20*130)+(23*150))	6050	6050
Cost of Goods Sold	4570	4730
Gross Profit	1480	1320
Operating Expenses	500	500
Income before Taxes	980	820
Income taxes (30%)	294	246
Net Income	686	574

Cost of Goods Sold is calculated using the tables below:

FIFO
	Beginning Inventory			Purchases			Sales / COGS			Ending Inventory
Date	Units	Price	Total	Units	Price	Total	Units	Price	Total	Units	Price	Total
May-01	10	91	910							10	91	910
May-03				15	106	1590				10	91	910
										15	106	1590
May-14							20	5	100	0	91	0
										5	106	530
May-17				20	115	2300				5	106	530
										20	115	2300
May-28				10	119	1190				5	106	530
										20	115	2300
										10	119	1190
May-31							5	106	530	2	115	230
							18	115	2070	10	119	1190
Total	10		910	45		5080	43		2700	12		1420

LIFO
	Beginning Inventory			Purchases			Sales / COGS			Ending Inventory
Date	Units	Price	Total	Units	Price	Total	Units	Price	Total	Units	Price	Total
May-01	10	91	910							10	91	910
May-03				15	106	1590				10	91	910
										15	106	1590
May-14							20	5	100	5	91	455
										0	106	0
May-17				20	115	2300				5	91	455
										20	115	2300
May-28				10	119	1190				5	91	455
										20	115	2300
										10	119	1190
May-31							13	115	1495	5	91	455
							10	119	1190	7	115	805
Total	10		910	45		5080	43		2785	12		1260