Question

the whyte company uses a fifo system for its inventory and starts off the current year with ten units costing $8 each. seven units are sold for $16 each, followed by the purchase of ten additional units at $10 each. then, seven more units are sold for $20 each. finally, ten units are bought for $13 each. on december 31 of that year, a customer offers to buy one of the units still in inventory but is only willing to pay $12. if whyte takes that offer, what is the impact of that sale on reported net income?

Answer 1

The impact on net income from selling one unit at $12 will vary. If a unit from the $8 or $10 inventory is sold, there would be a profit; however, if a $13 unit is sold, it would result in a loss. The exact impact depends on which unit is sold.

Step-by-step explanation:

The question provided pertains to a FIFO (First-In, First-Out) inventory system scenario for the Whyte Company that includes purchasing and selling at various prices throughout the year. To assess the impact of the sale on December 31, at a price of $12, we must examine the inventory costs remaining after previous sales.

1. The company starts with ten units at $8 each. After selling seven units, three remain at $8 each.
2. Then, ten units are purchased at $10 each.
3. Another seven units are sold. According to FIFO, the remaining units would be three at $8 each and seven at $10 each.
4. Finally, ten more units are acquired at $13 each.

If the customer buys one unit for $12 at the end of the year, the impact on the reported net income would depend on which unit is sold. If it's one of the $8 or $10 ones, the sale will be at a profit (either $4 or $2). However, selling one of the $13 units would result in a $1 loss per unit. Without knowing exactly which unit is sold, we can't determine the precise effect on net income.