Question

Montana Co. has determined its year-end inventory on a FIFO basis to be $600,000. Information pertaining to that inventory is as follows:

What should be the carrying value of Montana's inventory?

a) $600,000
b) The carrying value cannot be determined from the given information
c) $600,000 plus any additional costs incurred after the year-end
d) $600,000 minus any additional costs incurred after the year-end

Answer 1

The carrying value of Montana Co.'s inventory on a FIFO basis is $600,000. This figure does not include additional costs after year-end. A firm's accounting profit is calculated by subtracting expenses from its sales revenue, which in the example provided, would be $50,000.

Step-by-step explanation:

The carrying value of Montana Co.'s inventory determined on a FIFO basis should be $600,000. According to FIFO, this value represents the cost of inventory calculated by using the costs of the earliest items purchased. Additional costs incurred after the year-end are not included in the carrying value of the inventory as these costs would be accounted for in the period they are incurred. Therefore, the correct answer is option a) $600,000.

Using the self-check question provided as a reference, to calculate a firm's accounting profit, we subtract the total expenses from the sales revenue. The firm's accounting profit would be calculated as follows: $1 million (sales revenue) - $600,000 (labor) - $150,000 (capital) - $200,000 (materials) = $50,000. This is the firm's profit for the last year based on these figures.