Question

# Orion Iron Corp. tracks the number of units purchased and sold throughout each year but applies...

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 250 \$ 10 For the year: b. Purchase, April 11 600 12 c. Purchase, June 1 400 12 d. Sale, May 1 (sold for \$45 per unit) 250 e. Sale, July 3 (sold for \$45 per unit) 350 f. Operating expenses (excluding income tax expense), \$18,800

Required:

1. 1. Calculate the number and cost of goods available for sale.
2. 2. Calculate the number of units in ending inventory.
3. 3. Compute the cost of ending inventory and cost of goods sold under (a) FIFO, (b) LIFO, and (c) weighted average cost.
4. 4. Prepare an income statement that shows under the FIFO method, LIFO method and weighted average method.
5. 6. Which inventory costing method minimizes income taxes?

1) Calculate following

 Unit Unit Cost Total Cost Inventory, Beginning 250 10 2500 Purchase, April 11 600 12 7200 Purchase, June 1 400 12 4800 Total 1250 14500

Number of goods available for sale = 1250 Units

Cost of goods available for sale = \$14500

2) Ending inventory units = 1250-250-350 = 650 Units

3) Calculate following

 FIFO LIFO Weighted average Cost of ending inventory 650*12 = 7800 (250*10+400*12) = 7300 14500/1250*650 = 7540 Cost of goods sold 14500-7800 = 6700 14500-7300 = 7200 14500-7540 = 6960

4)) Income statement

 FIFO LIFO Weighted average Sales 600*45 = 27000 27000 27000 Cost of goods sold 6700 7200 6960 Gross profit 20300 19800 20040 Operating income 18800 18800 18800 Income before tax 1500 1000 1240

5) LIFO costing method has minimize income taxes

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