Question

Courtney Company uses a periodic inventory system. The following data were available: beginning inventory, 1,900 units at $20; purchases, 5,700 units at $25; operating expenses (excluding income taxes), $96,000; ending inventory per physical count at December 31, 1,200 units; sales price per unit, $50; and average income tax rate, 30%. Required: 1. Prepare income statements under the FIFO, LIFO, and weighted average costing methods. (Do not round intermediate calculations. Round your final answers to the nearest dollar amount.)

Between FIFO and LIFO, which method is preferable in terms of maximizing income from operations, if costs are rising?

Answer 1

FIFO method states that goods purchased first will be sold first
LIFO method states that goods purchased later will be sold first
Weighted average method takes into account weighted average for calculating cost
	Units	Price	Cost
Beginning Inventoory	1900	20	38000
Purchases	5700	25	142500
Total Available	7600		180500
Less: Ending Inventory	1,200
Units sold	6,400
Income Statement
	FIFO	LIFO	Weighted average
Sales Revenue	320,000	320,000	320,000
Less: Cost of Goods sold	150,500	156,500	152,000
Operating Expenses	96,000	96,000	96,000
Income before tax	73,500	67,500	72,000
Less: Taxes	22,050	20,250	21,600
Net Income	51,450	47,250	50,400
FIFO will produce higher income, when costs are rising