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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. 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?
Expert Solution
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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