The management of Stampfer Inc. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods. For 2007 the accounting records show these data.
Inventory, January 1 (10,000 units) $35,390
Cost of 120,000 units purchased 484,338
Selling price of 100,000 units sold 727,940
Operating expenses 116,290
Units purchased consisted of 35,010 units at $3.75 on May 10; 60,580 units at $3.93 on August 15; and 24,410 units at $4.71 on November 20. Income taxes are 31%.
Complete the comparative condensed income statements for 2007 under FIFO and LIFO below. plz help
To determine the comparative effects of the FIFO and LIFO inventory cost flow methods, we need to calculate the cost of goods sold and ending inventory under both methods.
First, let's calculate the cost of goods sold under the FIFO method:
1. Calculate the total cost of all units purchased:
35,010 units x $3.75 = $131,287.50
60,580 units x $3.93 = $238,096.40
24,410 units x $4.71 = $114,923.10
Total cost of units purchased = $484,306
2. Calculate the cost of goods sold:
Beginning inventory (10,000 units) x $3.53 = $35,390
Cost of units purchased = $484,306
Cost of goods available for sale = $35,390 + $484,306 = $519,696
Cost of goods sold = Cost of goods available for sale - Ending inventory
To calculate the ending inventory under FIFO, we need to determine the number of units remaining on hand as of December 31. To do this, we need to subtract the number of units sold from the number of units available for sale:
Units available for sale = Beginning inventory + Units purchased
Units available for sale = 10,000 + 35,010 + 60,580 + 24,410 = 130,000
Units remaining on hand = Units available for sale - Units sold
Units remaining on hand = 130,000 - 100,000 = 30,000
Next, let's calculate the ending inventory under the LIFO method:
1. Calculate the total cost of all units purchased:
24,410 units x $4.71 = $114,923.10
60,580 units x $3.93 = $238,096.40
35,010 units x $3.75 = $131,287.50
Total cost of units purchased = $484,306
2. Calculate the cost of goods sold:
Beginning inventory (10,000 units) x $3.53 = $35,390
Cost of units purchased = $484,306
Cost of goods available for sale = $35,390 + $484,306 = $519,696
Cost of goods sold = Cost of goods available for sale - Ending inventory
To calculate the ending inventory under LIFO, we need to determine the number of units remaining on hand as of December 31. To do this, we need to subtract the number of units sold from the number of units available for sale:
Units remaining on hand = Units available for sale - Units sold
Units remaining on hand = 130,000 - 100,000 = 30,000
Now, we can complete the comparative condensed income statements for 2007 under FIFO and LIFO:
Comparative Condensed Income Statement (FIFO)
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Sales revenue: $727,940
Cost of goods sold: (Calculate using FIFO method)
Operating expenses: $116,290
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Income before taxes: (Sales revenue - Cost of goods sold - Operating expenses)
Income taxes: (Income before taxes x 31%)
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Net income: (Income before taxes - Income taxes)
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Comparative Condensed Income Statement (LIFO)
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Sales revenue: $727,940
Cost of goods sold: (Calculate using LIFO method)
Operating expenses: $116,290
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Income before taxes: (Sales revenue - Cost of goods sold - Operating expenses)
Income taxes: (Income before taxes x 31%)
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Net income: (Income before taxes - Income taxes)
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By calculating the cost of goods sold and ending inventory under both FIFO and LIFO methods, you can complete the comparative condensed income statements for 2007.