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%.

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

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

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

Answer 1

Facts of the Question:

(Units)

Date	Opening Stock	Purchases	Sales
May'1	4200
May'6		2,000
May'8			3,000
May'13		2,500
May'18			1,900
May'21		4,000
May'28			2,200
May'30		2,300
Total	4200	10800	7100

Ending Inventory= Opening Inventory + Purchases – Sales

                                = 4,200 units + 10,800 units – 7,100 units

                               = 7,900 units

Part-1)

Calculation of ending inventory of the company under FIFO Method – Periodic Inventory System

Units of Ending Inventory as on May 31: 7,900 Units

FIFO method- Periodic Inventory: Value of ending inventory will have units bought latest and moving backwards.

Date	Units	Rate	Amount
May'13	1,600	$ 15	$ 24,000
May'21	4,000	$ 8	$ 32,000
May'30	2,300	$ 17	$ 39,100
Total	7,900		$ 95,100

Solution: Value of ending inventory under FIFO method is $ 95,100.

Part -2)

Calculation of Gross Profit under Weighted average method:

Gross Profit = Sales – Cost of Goods Sold

                      = $ 227,200 - $ 83780.

                 = $ 143,420.

Therefore Gross Profit under Weighted average Cost method is $ 143,420.

Workings:

Cost of Goods Sold = Number of units sold X weighted average rate per unit

                                  = 7,100 units X $ 11.80 per unit

                                 = $ 83,780.

Sales = (Selling Price per unit) x (Units sold)

          = ($ 32.00 per unit X 7,100 units)

          = $ 227,200.

Calculation of Weighted Average Rate:

Date	Particulars	Units	Rate	Amount
May'1	Opening Inventory	4,200	$12	$50,400
May'6	Purchases	2,000	$9	$18,000
May'13	Purchases	2,500	$15	$37,500
May'21	Purchases	4,000	$8	$32,000
May'30	Purchases	2,300	$17	$39,100
Total		15,000		$1,77,000

Weighted average rate per unit = (Total cost of opening inventory and units purchased during the     period)/ Total number of units of opening inventory and units purchased during the period)

Weighted Average rate = $ 177,000/ 15,000

                                           = $ 11.80 per unit

  

Part -3)

Calculation of Net Income under LIFO method – Periodic Inventory System

Particulars	Amount (in $)
Sales (7,100 units x $ 32 per unit)   (A)	2,27,200
Cost of Goods Sold:
Opening Stock (4200 units X $ 12 per unit)	50,400
Add: Purchases (refer working note below)	1,26,600
Less: Closing Stock (refer working note below)	93,900
COGS (B)	83,100
Gross profit (A) - (B)	1,44,100
Less: Operating Expenses	26,100
Profit Before Tax	1,18,000
Less: Tax @ 34%	40,120
Net Income	77,880

Therefore net income of ABC company under LIFO method is $ 77,880.

Working Notes:

Value of Purchases:

Date	Units	Rate	Amount
May'6	2,000	$ 9	$18,000
May'13	2,500	$ 15	$37,500
May'21	4,000	$ 8	$32,000
May'30	2,300	$ 17	$39,100
Total	10,800		$126,600

Value of Closing Inventory: LIFO method under Period Inventory System

Date	Units	Rate	Amount
May'1	4,200	$ 120	$50,400
May'6	2,000	$ 9	$18,000
May'13	1,700	$ 15	$25,500
Total	7,900		$93,900