Question

In: Accounting

Carmel Inc. started the business year with 200 units of inventory that cost a total amount...

Carmel Inc. started the business year with 200 units of inventory that cost a total amount of $34,000 (all units were purchased for the same price). During the year, the company entered into the following transactions:

1 .Purchasing on Feb 1st an additional 200 units for the price of 180 each.

2 .Purchasing on April 15th an additional 70 units for the price of 210 each.

3 .Purchasing on November 1st an additional 110 units for the price of 260 each.

4 .Selling on October 1st, 450 units for the total amount of $2,000,000.

Required:

A. Compute the cost of ending inventory and COGS assuming FIFO (Using the periodic or the perpetual method.

B. Compute the cost of ending inventory and COGS assuming LIFO and using the periodic method.

C. Compute the cost of ending inventory and COGS assuming LIFO and using the perpetual method.

D. Compute the cost of ending inventory and COGS assuming Average Cost and the periodic method.

E. When prices are rising, which method will result in:

1. Highest gross profit?

2. A more accurate (i.e., closer to replacement cost) ending balance of Inventory on the balance sheet?

3. Highest pre-tax earnings, which lead to higher tax payments?

4. A more accurate (i.e., closer to economic profit) net income?

Solutions

Expert Solution

The answer for first 4 sub-parts being A,B,C and D is attached in below picture

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