Question

At the beginning of the current period, Chen carried 1,000 units of its product with a unit cost of $40. A summary of purchases during the current period follows. During the period, Chen sold 2,800 units.

Units Unit Cost Cost
Beginning Inventory 1,000 $ 40 $ 40,000
Purchase #1 1,800 44 79,200
Purchase #2 800 52 41,600
Purchase #3 1,200 58 69,600

Which of these three inventory costing methods would you choose to:

1. Reflect what is probably the physical flow of goods?
(A) LIFO
(B) FIFO
(C) Average Cost

2. Minimize income taxes for the period?
(A) LIFO
(B) FIFO
(C) Average Cost

3. Report the largest amount of income for the period?
(A) LIFO
(B) FIFO
(C) Average Cost

Answer 1

1. Reflect what is probably the physical flow of goods?

(A) LIFO 146200

(B) FIFO 119600

(C) Average Cost 134400

2. Minimize income taxes for the period?

(A) LIFO higuer Cost less tax

(B) FIFO

(C) Average Cost

3. Report the largest amount of income for the period?

(A) LIFO

(B) FIFO lower cost higuer income

(C) Average Cost

Step-by-step explanation:

FIFO Unit C/Unit C/inventory Cost

Beggining Inve 1000 40 40000 1000 40000

Purchase 1800 44 79200 1800 79200

Purchase 800 52 41600 0 0

Purchase 1200 58 69600 0 0

4800 230400 2800 119200

2800 119200

LIFO Unit C/Unit C/inventory Cost

Beggining Inve 1000 40 40000 0 0

Purchase 1800 44 79200 800 35200

Purchase 800 52 41600 800 41600

Purchase 1200 58 69600 1200 69600

4800 230400 2800 146400

2800 146400

AVERAGE Unit C/Unit C/inventory Cost

Beggining Inve 1000 40 40000 0 0

Purchase 1800 44 79200 0

2800 43 119200

Purchase 800 52 41600 0

3600 45 160800

Purchase 1200 58 69600 0

4800 48 230400 2800 134400

2800 134400