Question

Romanoff Industries had the following inventory transactions occur during 2015:

Units Cost/unit
a) 2/1/15 Purchase 54 $45
b) 3/14/15 Purchase 93 $47
c) 5/1/15 Purchase 66 $49
The company sold 150 units at $70 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company's after-tax income using FIFO? (rounded to whole dollars)

Answer 1

The company's after-tax income using FIFO cannot be computed accurately with the incomplete inventory cost data. However, with the provided transaction, the after-tax income would tentatively be $4,290, assuming there are no additional inventory costs.

Step-by-step explanation:

To calculate the company's after-tax income using FIFO (First In, First Out), we need to determine the cost of goods sold (COGS) and then subtract this from the sales revenue to find the pretax income. Assuming the student's brief transaction record implies that the only inventory purchase made was on 3/14/15 of 93 units at $47 each, and no beginning inventory, the COGS for the 150 units sold would involve the entire 93 units at $47 (the oldest inventory cost) and the remaining 57 units would be at the next available cost (which hasn't been provided).

However, without information on the cost of additional units, we cannot accurately compute FIFO COGS. If we proceed with only the provided transaction, the COGS would be 93 units × $47 = $4,371. The sales revenue from the 150 units at $70 each is 150 units × $70 = $10,500. Therefore, the gross profit is $10,500 (sales revenue) - $4,371 (COGS) = $6,129. The taxes would be 30% of the gross profit, which equals $6,129 × 30% = $1,839 (rounded). The after-tax income would therefore be $6,129 (gross profit) - $1,839 (taxes) = $4,290 (rounded to whole dollars).