Question

Courtney Company uses a periodic inventory system. The following data was available: beginning merchandise inventory, 1,200 units at $25; purchases, 3,600 units at $35; operating expenses (excluding income taxes), $92,000; ending inventory per physical count at December 31, 1,000 units; sales price per unit, $75; and average income tax rate, 30 percent.


Required:
1. Prepare income statements under the FIFO and weighted average costing methods. (Do not round Weighted average cost per unit. Round your final answers to the nearest dollar amount.)

2-a. Which method is preferable in terms of maximizing income from operations?

• FIFO

• Weighted Average

• LIFO

2-b. Which method is preferable in terms of minimizing income taxes?

• FIFO

• Weighted Average

• LIFO

3. Not available in connect.

Answer 1

solution 1:

Total units sold = Units available for sale - Units in ending inventory = 1200 + 3600 - 1000 = 3800 units

Average cost per unit = Cost of goods available for sale / Units available for sale = (1200*$25 + 3600*$35) / 4800 = $32.50 per unit

Cost of goods sold - FIFO = (1200*$25) + (2600*$35) = $121,000

Cost of goods sold - Weighted average = 3800*$32.50 = $123,500

Courtney Company Income Statement
Particulars	FIFO	Weighted average
Sales	$285,000.00	$285,000.00
Cost of goods sold	$121,000.00	$123,500.00
Gross profit	$164,000.00	$161,500.00
Operating expenses	$92,000.00	$92,000.00
Income before taxes	$72,000.00	$69,500.00
Income tax expense (30%)	$21,600.00	$20,850.00
Net Income	$50,400.00	$48,650.00

Solution 2a:

FIFO method is preferable in terms of maximizing income from operations.

Solution 2b:

LIFO method is preferable in terms of maximizing income from operations.