Question

Following is partial information for the income statement of Audio Solutions Company under three different inventory costing methods, assuming the use of a periodic inventory system: Required: 1. Compute cost of goods sold under the FIFO, LIFO, and average cost inventory costing methods. 2. Prepare an income statement through pretax income for each method. Sales, 350 units; unit sales price, $50; Expenses, $1,700 3. Rank the three methods in order of income taxes paid (favorable cash flow). Complate this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Compute cost of goods sold under the FIFO, LIFO, and average cost inventory costing methods. Note: Do not round intermediate calculations. FIFO LIFO Aversge Cost Cost of goods sold Beginning inventory (400 units @ $28) Purchases (475 units @ $35) Goods available for sale Ending inventory (525 units) Cost of goods sold $ 11,200 $ 11,200 $ 11,200 16,625 16,625 16,625

          Following is partial information for the income statement of Audio Solutions Company under three different inventory costing methods, assuming the use of a periodic inventory system:
Required:
1. Compute cost of goods sold under the FIFO, LIFO, and average cost inventory costing methods.
2. Prepare an income statement through pretax income for each method.
Sales, 350 units; unit sales price, $50; Expenses, $1,700
3. Rank the three methods in order of income taxes paid (favorable cash flow).
Complate this question by entering your answers in the tabs below.
Required 1 Required 2 Required 3
Compute cost of goods sold under the FIFO, LIFO, and average cost inventory costing methods.
Note: Do not round intermediate calculations.
FIFO
LIFO
Aversge
Cost
Cost of goods sold
Beginning inventory (400 units @ $28)
Purchases (475 units @ $35)
Goods available for sale
Ending inventory (525 units)
Cost of goods sold
$ 11,200 $ 11,200 $ 11,200
16,625
16,625
16,625

Show more…

Following is partial information for the income statement of Audio Solutions Company under three different inventory costing methods, assuming the use of a periodic inventory system:
Required:
1. Compute cost of goods sold under the FIFO, LIFO, and average cost inventory costing methods.
2. Prepare an income statement through pretax income for each method.
Sales, 350 units; unit sales price, 50; Expenses,1,700
3. Rank the three methods in order of income taxes paid (favorable cash flow).
Complate this question by entering your answers in the tabs below.
Required 1 Required 2 Required 3
Compute cost of goods sold under the FIFO, LIFO, and average cost inventory costing methods.
Note: Do not round intermediate calculations.
FIFO
LIFO
Aversge
Cost
Cost of goods sold
Beginning inventory (400 units @ 28)
Purchases (475 units @35)
Goods available for sale
Ending inventory (525 units)
Cost of goods sold
11,200 11,200 11,200
16,625
16,625
16,625

Added by Jose J.

Horngren’s Cost Accounting

Srikant M. Datar, Madhav V. Rajan 16th Edition

Instant Answer

Solved by Expert Akash M

06/08/2023

Step 1

- For the FIFO method, the COGS is given as $11,200. - For the LIFO method, the COGS is given as $16,625. - For the Average Cost method, the COGS is given as $13,912.50. Step 2: Calculate the Gross Profit for each method. - For the FIFO method, the Gross Profit Show more…

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Required2 Income Statement - FIFO Method Sales: 350 units x $50 = $17,500 Cost of Goods Sold: $11,200 Gross Profit: $17,500 - $11,200 = $6,300 Expenses: $1,700 Pretax Income: $6,300 - $1,700 = $4,600 Income Statement - LIFO Method Sales: 350 units x $50 = $17,500 Cost of Goods Sold: $16,625 Gross Profit: $17,500 - $16,625 = $875 Expenses: $1,700 Pretax Income: $875 - $1,700 = -$825 Income Statement - Average Cost Method Sales: 350 units x $50 = $17,500 Cost of Goods Sold: $13,912.50 Gross Profit: $17,500 - $13,912.50 = $3,587.50 Expenses: $1,700 Pretax Income: $3,587.50 - $1,700 = $1,887.50 Required3 Ranking of Methods in Order of Income Taxes Paid (Favorable Cash Flow): 1. Average Cost Method 2. FIFO Method 3. LIFO Method

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Transcript

00:02 Under fifo, which is first in first out costing method, the assumption is that the first units purchased are the first ones sold.

00:48 Therefore, the cost of the ending inventory will be based on the most recent purchase.

01:22 In this case, the most recent purchase occurred in november 20, 20x5 at a cost of $10 per unit since the ending inventory is 800 units.

02:01 So 800 multiplied by $10, we get it as $8000.

02:12 So the ending inventory on the balance sheet will be $5600.

02:45 So we can say the correct option is option b, which says $5600.

02:52 Next, over here, in this case, the most recent purchase occurred on september 20x4 at a cost of $7 per unit since the company sold 2000 units.

03:31 It is evaluated as 2000 multiplied by $7.

03:35 We get the value as $14000.

03:38 So we can say that the cost of goods sold is $13000.

03:56 So the correct option is option d, which says $13000.

04:03 Next, here, the recent purchase occurred on november 20x4 and has 1000, sorry, it has recent purchase occurred on november 20x5 at a cost of $10 per unit.

04:38 The company sold 1700 units.

04:51 So the value then will be 1700 multiplied by 10.

04:58 We get $17000.

05:01 So we can say that the cost of goods sold in 20x5 is $14300.

05:20 So the correct option is option a, which says $14300.

05:28 Next, here, the most recent purchase occurred in november 2015, where cost is of $10 per unit.

05:58 Since the company has 1000 units in its ending inventory, the calculation is done as 1000 multiplied by $10.

06:28 We get the value as $10000.

06:32 So we can say that the ending inventory on the december 31, 2015 balance sheet is $7000...

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