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, 2012.

Transactions Units Unit
Cost
a. Inventory, December 31, 2011 500 $ 10
For the year 2012:
b. Purchase, April 11 800 8
c. Purchase, June 1 700 12
d. Sale, May 1 (sold for $38 per unit) 500
e. Sale, July 3 (sold for $38 per unit) 520
f. Operating expenses (excluding income tax expense), $19,000
Required:
1. Calculate the number and cost of goods available for sale.
2. Calculate the number of units in ending inventory.
3. Compute the cost of ending inventory and cost of goods sold under (a) FIFO, (b) LIFO, and (c) weighted average cost. (Do not round intermediate calculations. Round your final answers to the nearest dollar amount.)
4. Prepare an Income Statement that shows 2012 amounts under the FIFO method, LIFO method and weighted average method.

Answer 1

Explanation:

Sales Purchase

Transaction unit Unit Unit cost Total

Opening inventory 500 10 5000

April 11 800 8 6,400

June 1 700 12 8,400

May 1 500 38

July 3 520 38

Operating expenses = $19,000

1)Number of goods available = 2000

Cost of goods available = $19,800

2) Number of units in ending inventory

= Opening inventory + purchase - sales

1500-1020= 480

3) COST(FIFO)

Ending inventory Goods sold

May 1 500*10 = 5000

July 3 520* 8 = 4,160

280 * 8 = 2240

700*12 = 8,400

Total 10,640 9,160

COST (LIFO)

May 1 500 * 12 = 6000

July 3 200*12 = 2400

320* 8 = 2560

480*8 = 3,840

500*10 = 5000

Total 8,840 10,960

Weighted average cost

19800/2000 =9.9 480*9.9 = 4,752 1020*9.9=10,098

sales revenue = (500+520)* 38 =$38760

Income statement

FIFO LIFO WEIGHTED AV

Sales 38,760 38,760 38,760

Cost of goods 9,160 10,960 10,098

Gross profit 29,600 27,800 28,662

Operating expenses 19,000 19,000 19,000

PBIT 10,600 8,800 9,662