Question

Orion Iron Corp. tracks the number of units purchased and sold throughout each year but applies its inventory costing method at the end of the year, as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the annual accounting period, December 31.

Transactions Units Units Cost
a. Inventory, Beginning For the year 300 $19
b. Purchase, April 11 900 17
c. Purchase, June 1 800 20
d Sale, May 1 (sold for $47 per unit) 300
e. Sale, July 3 (sold for $47 per unit) 680
f. Operating expenses (excluding income tax expense), $18,700
Required:
1. Calculate the number and cost of goods available for sale.
2. Compute the cost of ending inventory and cost of goods sold under (a) FIFO, (b) LIFO, and (c) weighted average cost.
3. Prepare an Income Statement that shows the FIFO method, LIFO method, and weighted average method.

Answer 1

Results are below.

Step-by-step explanation:

First, we need to calculate the number and cost of goods available for sale:

Number of units= 300 + 900 + 800= 2,000

Cost of goods available for sale= (300*19) + (900*17) + (800*20)

cost of goods available for sale= $37,000

FIFO:

Under the FIFO (first-in, first-out), the cost of goods sold is calculated using the cost of the firsts units incorporated into inventory.

COGS= 300*19 + 680*17= $17,260

Ending inventory= 37,000 - 17,260= $19,740

LIFO:

Under the LIFO (last-in, first-out), the cost of goods sold is calculated using the cost of the lasts units incorporated into inventory.

COGS= 800*20 + 180*17= $19,060

Ending inventory= 37,000 - 19,060= $17,940

Weighted-average:

Weighted-average cost= 37,000/2,000= $18.5 per unit

COGS= 980*18.5= $18,130

Ending inventory= 1,020*18.5= $18,870

Finally, the income statements for each method:

FIFO:

sales= (980*47)= 46,060

COGS= (17,260)

Gross profit= 28,800

Operating expenses= (18,700)

Net operating income= 10,100

LIFO:

sales= (980*47)= 46,060

COGS= (19,060)

Gross profit= 27,000

Operating expenses= (18,700)

Net operating income= 8,300

Weighted-average:

sales= (980*47)= 46,060

COGS= (18,130)

Gross profit= 27,930

Operating expenses= (18,700)

Net operating income= 9,230