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Homework answers / question archive / Shawn Company had 240 units in beginning inventory at a total cost of $28,800

Shawn Company had 240 units in beginning inventory at a total cost of $28,800

Business

Shawn Company had 240 units in beginning inventory at a total cost of $28,800. The company purchased 480 units at a total cost of $67,200. At the end of the year, Shawn had 180 units in ending inventory.

Compute the cost of the ending inventory and the cost of goods sold under FIFO, LIFO, and average-cost. (Round average-cost per unit and final answers to 0 decimal places.)

a) Which cost flow method would result in the highest net income?

b) Which cost flow method would result in inventories approximating current cost in the balance

sheet?

c) Which cost flow method would result in Shawn paying the least taxes in the first year?

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Opening Inventory= 240 units, cost of $28,800

Per unit cost= $28,800/240 units = $120per unit

Purchases= 480 units, cost of $67,200

Per unit cost= $67,200/480 units = $140per unit

Ending Inventory= 180 units

Sales = Opening + Purchases- Closing

= 240 units+480 units-180 units =540 units

FIFO= 180 units*140 per unit ( Purchase cost) = $ 25,200

LIFO= 180 units*120 per unit (Opening inventory cost) = $ 21,600

Average-cost= 180 units*$133 per unit =$23,940

    • ( Average cost = Total cost/Total units) = ($28,800+$67,200)/(240 units+480 Units) = $133 per unit

Cost of goods sold

FIFO

240 units @120 = $28,800

300 units @140 = $42,000

LIFO

480 units @140 = $67,200

60 units @120 = $6,000

Average cost = 540 units @133= $71,820

a) FIFO method will increase profit.

b) LIFO method

c) FIFO method

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