Question

Ayayai Inc. is trying to determine whether to use the FIFO or average cost formula. The accounting records show the following selected inventory information:

			Purchases						Cost of Goods Sold						Ending Inventory
Date			Units		Cost		Total		Units		Cost		Total		Units		Cost		Total
Oct.	2		9,600		$13		$124,800								9,600		$13		$124,800
	15		16,000		15		240,000								[1]		[2]
															[3]		[4]		[5]
	29								21,400
									[6]		[7]
									[8]		[9]		[10]		[11]		[12]		[13]

The company accountant has prepared the following partial statement of income to help management understand the financial statement impact of each cost determination cost formula.

		FIFO		Average
Sales		$523,000		$523,000
Cost of goods sold
Gross profit
Operating expenses		191,000		191,000
Income before income tax
Income tax expense (30%)
Net income

Fill in the missing amounts in the perpetual inventory schedule, assuming the use of the FIFO cost formula.

			Purchases				Cost of Goods Sold				Ending Inventory
Date			Units	Cost	Total		Units	Cost	Total		Units	Cost	Total
	Oct. 2		9,600	$13	$124,800						9,600	$13	$124,800
	15		16,000	15	240,000						enter a number of units	enter a dollar amount
											enter a number of units	enter a dollar amount	$enter a total amount
	29						21,400	(total units sold)
							enter a number of units	$enter a dollar amount
							enter a number of units	enter a dollar amount	$enter a total amount		enter a number of units	enter a dollar amount	enter a total amount

i double checked and this is the complete question, is there anything specific needed?

Answer 1

1. First we have to find the cost of godd sold under FIFO method:

Date	Particulars	Receipts/ Purchases	Issue/ COGS	Ending Inventory
		Units	Price	Amount	Units	Price		Units	Price	Amount
Oct.2	Purchase	9600	$13.00	$124,800				9600	$13.00	$124,800
Oct.15	Purchase	16000	$15.00	$240,000				9600	$13.00	$124,800
								16000	$15.00	$240,000
Oct 29	Sales				9600	$13.00	$124,800
					11800	$15.00	$177,000	4200	$15.00	$63,000

Cost of Good sold= $124,800+ $177,000= $301,800

Closing Inventory=$63,000

2. Next, we need to find the cost of godd sold under Average cost method:

Date	Particulars	Receipts/ Purchases	Issue/ COGS	Ending Inventory
		Units	Price	Amount	Units	Price		Units	Price	Amount
Oct.2	Purchase	9600	$13.00	$124,800				9600	$13.00	$124,800
Oct.15	Purchase	16000	$15.00	$240,000				25,600	$14.25	$364,800
Oct 29					21400	$14.25	$304,950	4200	$14.25	$59,850

Cost of Goods sold= $304,950

Closing Inventory=$59,850

3.Now putting values in the Income Statement, we will get the Net Income under both the methods:

Particulars	FIFO	Average
Sales	$523,000	$523,000
Less: Cost of goods sold	$301,800	$304,950
Gross margin-	$221,200	$218,050
Less: Operating expenses	$191,000	$191,000
Income before Income tax	$30,200	$37,050
Income tax expense(30%)	$9,060	$8,115
Net Income-	$21,140	$18,935

The Net Income is higher in FIFO method.This is due to the reason that may be the costs of goods are increasing. If the costs will not increase at this rate then the Net Incoome is higher in Average cost method and lower in FIFO method.