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Orion Iron Corp
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 |
3,000 |
$18 |
||
|
For the year: |
|||||
|
b. |
Purchase, April 11 |
8,000 |
16 |
||
|
c. |
Purchase, June 1 |
7,000 |
19 |
||
|
d. |
Sale, May 1 (sold for $46 per unit) |
3,000 |
|||
|
e. |
Sale, July 3 (sold for $46 per unit) |
6,600 |
|||
|
f. |
Operating expenses (excluding income tax expense), $213,000 |
||||
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 and (b) weighted average cost. (Round Weighted average cost per unit to two decimal places and final answers to the nearest dollar amount.)
4. Prepare an income statement that shows amounts for the FIFO method in one column and for the weighted average method in another column. Include the following line items in the income statement: Sales, Cost of Goods Sold, Gross Profit, Operating Expenses, and Income from Operations. (Round Weighted average cost per unit to two decimal places and final answers to the nearest dollar amount.)
Expert Solution
Requirement 1:
| Number of Goods Available for Sale | 18,000 Units |
| Cost of Goods Available for Sale | $315,000 |
Working notes:
Number of goods available for sale = 3,000 + 8,000 + 7,000 = 18,000 units
Cost of goods available for sale = (3,000 Units x $18) + (8,000 units x $16) + (7,000 units x $19)
= $54,000 + $128,000 + $133,000
= $315,000
Requirement 2:
| Ending Inventory = 8,400 Units |
Working notes:
Sales = 3,000 + 6,600 = 9,600 Units
Number of goods available for sale = 3,000 + 8,000 + 7,000 = 18,000 units
Ending Inventory = 18,000 Units - 9,600 Units = 8,400 Units
Requirement 3:
| Cost of Ending Inventory | Cost of Goods sold | |
| FIFO | $155,400 | $159,600 |
| LIFO | $140,400 | $174,600 |
| Weighted Average cost | $147,000 | $168,000 |
Working notes:
FIFO
Ending Inventory = (7,000 Units x $19) + (8,400 Units - 7,000 Units) x $16
= (7,000 Units x $19) + (1,400 Units x $16)
= $133,000 + $22,400
= $155,400
Cost of goods sold = (3,000 units x $18) + (8,000 Units - 1,400 Units) x $16
= (3,000 Units x $18) + (6,600 Units x $16)
= $54,000 + $105,600
= $159,600
LIFO
Ending Inventory = (3,000 Units x $18) + (8,400 Units - 3,000 Units) x $16
= (3,000 Units x $18) + (5,400 Units x $16)
= $54,000 + $86,400
= $140,400
Cost of goods sold = (8,000 Units - 5,400 Units) x $16 + (7,000 Units x $19)
= (2,600 Units x $16) + (7,000 Units x $19)
= $41,600 + $133,000
= $174,600
Weighted Average Cost
Average cost per unit = (3,000 Units x $18) + (8,000 units x $16) + (7,000 units x $19) / 18,000 Units
= $315,000 / 18,000 Units
= $17.50 per unit
Ending Inventory = 8,400 Units x $17.50 per unit = $147,000
Cost of goods sold = 9,600 Units x $17.50 per unit = $168,000
Requirement 4:
ORION IRON CORP.
Income Statement
For the Year Ended December 31
| FIFO | LIFO | Weighted Average | |
| Sales Revenue (9,600 Units x $46) | $441,600 | $441,600 | $441,600 |
| Less: Cost of goods sold | $159,600 | $174,600 | $168,000 |
| Gross Profit | $282,000 | $267,000 | $273,600 |
| Less: Operating expenses | $213,000 | $213,000 | $213,000 |
| Income (Loss) from operations | $69,000 | $54,000 | $60,600 |
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