Question

At the beginning of the current period, Hutton Company holds 1,000 units of its only product with a per-unit cost of $18.  A summary of purchases during the current period follows:

                                                                        Units               Unit Cost                    Cost

Beginning Inventory                                     1,000                $18.00                   $18,000

Purchases: #1                                                1,800                  18.25                      32,850

                    #2                                                    800                  18.50                     14,800

                    #3                                                1,200                 19.00                     22,800

                                                                        ---------                                                       ------------

Goods Available for Sale                               4,800                                              $88,450

                                                                        ======                                         ========

During the current period, Hutton sells 2,800 units.

Required:

1. Assume that Hutton uses the first-in, first-out (FIFO) method.  Compute the cost of goods sold for the current period and the ending inventory balance.
2. Assume that Hutton uses the last-in, first-out (LIFO) method.  Compute the cost of goods sold for the current period and the ending inventory balance.
3. Assume that Hutton uses the average cost (AC) method.  Compute the cost of goods sold for the current period and the ending inventory balance.
4. As manager, which of these three inventory costing methods would you choose:
   1. To reflect what is probably the physical flow of goods?  Explain.
   2. To minimize income taxes for the period?  Explain.
5. Assume that Hutton utilizes the LIFO method and instead of purchasing lot #3, the company allows its inventory level to decline and delays purchasing lot #3 until the next period.  Compute the

cost of goods sold under this scenario and discuss the effect of end-of-year purchases under LIFO.

Answer 1

The answer from A to D is attached in below picture

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