Question

Martinez Inc. is trying to determine whether to use the FIFO or average cost formula. The accounting records show the following selected inventory information:

			Purchases						Cost of Goods Sold						Ending Inventory
Date			Units		Cost		Total		Units		Cost		Total		Units		Cost		Total
Oct.	2		8,100		$11		$89,100								8,100		$11		$89,100
	15		13,500		13		175,500								[1]		[2]
															[3]		[4]		[5]
	29								20,800
									[6]		[7]
									[8]		[9]		[10]		[11]		[12]		[13]

The company accountant has prepared the following partial statement of income to help management understand the financial statement impact of each cost determination cost formula.

		FIFO		Average
Sales		$502,000		$502,000
Cost of goods sold
Gross profit
Operating expenses		216,000		216,000
Income before income tax
Income tax expense (30%)
Net income

Answer 1