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		500		$	10
For the year:
b. Purchase, April 11		800			8
c. Purchase, June 1		700			12
d. Sale, May 1 (sold for $38 per unit)		500
e. Sale, July 3 (sold for $38 per unit)		520
f. Operating expenses (excluding income tax expense), $19,000

Required:

1.	Calculate the number and cost of goods available for sale.

       

2.	Calculate the number of units in ending inventory.

       

3.	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.

       

6.

Which inventory costing method minimizes income taxes?

	FIFO
	LIFO
	Weighted Average Cost

Answer 1

1) Number of goods available for sale = 500+800+700 = 2000 Units

Cost of goods available for sale = (500*10+800*8+700*12) = 19800

2) Ending inventory = 2000-1020 = 980 Units

3) Cost of ending inventory and cost of goods sold

	Cost of ending inventory	Cost of goods sold
FIFO	(700*12+280*8) = 10640	19800-10640 = 9160
LIFO	(500*10+480*8) = 8840	19800-8840 = 10960
Weighted average	19800/2000*980 = 9702	19800-9702 = 10098

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

	FIFO	LIFO	Weighted average
Sales	1020*38 = 38760	38760	38760
Cost of goods sold	9160	10960	10098
Gross profit	29600	27800	28662
Operating expense	19000	19000	19000
Net operating income	10600	8800	9662

6) LIFO Minimize income tax