Question

Orion Iron Corp. tracks the number of units purchased and sold throughout each year but applies its inventory costing method at the end of the year, as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the annual accounting period, December 31.

Transactions	Units			Unit Cost
a. Inventory, Beginning		350		$	14
For the year:
b. Purchase, April 11		950			12
c. Purchase, June 1		700			16
d. Sale, May 1 (sold for $42 per unit)		350
e. Sale, July 3 (sold for $42 per unit)		670
f. Operating expenses (excluding income tax expense), $19,600

.	Compute the cost of ending inventory and cost of goods sold under (a) FIFO, (b) LIFO, and (c) weighted average cost. (Do not round intermediate calculations. Round your final answers to the nearest dollar amount.)

       

.	Prepare an Income Statement that shows the FIFO method, LIFO method and weighted average method.

       

Answer 1

Calculate cost of ending inventory and cost of goods sold :

	FIFO	LIFO	Weighted average
Units of goods available for sale	2000	2000	2000
Cost of goods available for sale	27500	27500	27500
Ending inventory	(700*16+280*12)=14560	(350*14+630*12) = 12460	(27500/2000*980) = 13475
Cost of goods sold	(27500-14560) = 12940	(27500-12460) = 15040	(27500/2000*1020) = 14025

Prepare income statement :

	FIFO	LIFO	Weighted average
Sales	1020*42 = 42840	42840	42840
Cost of goods sold	-12940	-15040	-14025
Gross profit	29900	27800	28815
Operating expense	-19600	-19600	-19600
Net operating income	10300	8200	9215