Question

ds) SWAT Surplus begea h, the company made the fol. 02 3. What is the cost of the P6-71B. (Learning Objective 2: Compare inventory by three methods) su March 2018 with 100 tents that cost $10 each. During the month, the com lowing purchases at cost: Mar 6 18 26 110 tents @ $20 = $2,200 120 tents @ $25 = 3,000 40 tents @ $30 = 1,200 The company sold 318 tents, and at March 31, the ending inventory consisted of 52 tents sales price of each tent was $52. Requirements 1. Determine the cost of goods sold and ending inventory amounts for March under the average-cost, FIFO, and LIFO costing methods. Round the average cost per unit to two decimal places, and round all other amounts to the rest dollar. 2. Explain why cost of goods sold is highest under LIFO. Be specific. 3. Prepare the SWAT Surplus income statement for March. Report gross profit. Operating expenses totaled $3,250. The company uses average costing for inventory. The income rate is 36%.

Answer 1

1) Calculation of Cost of goods available for sale

Date		Unit	Unit cost	Total cost
March 1	Beginning inventory	100	$10	$1000
March 6	Purchase	110	$20	2200
March 18	Purchase	120	$25	3000
March 26	Purchase	40	$30	1200
	Total	370		$7400

Average cost method

Average cost per unit= Total cost of goods available for sale/Total units

= $7400/370= $20 per unit

Cost of goods sold= Sales units*Average cost per unit

= $318*$20= $6360

Ending inventory= Cost of goods available for sale-Cost of goods sold

= $7400-6360= $1040

FIFO method

Calculation of Cost of goods sold

Date		Unit	Unit cost	Total cost
March 1	Beginning inventory	100	$10	$1000
March 6	Purchase	110	$20	2200
March 18	Purchase	108	$25	2700
	Total	318		$5900

March 18 sales units= Total sales units-March 1 units-March 6 units

= 318-100-110= 108 units

Ending inventory= Cost of goods available for sale-Cost of goods sold

= $7400-5900= $1500

LIFO method

Calculation of Cost of goods sold

Date		Unit	Unit cost	Total cost
March 26	Purchase	40	$30	$1200
March 18	Purchase	120	$25	3000
March 6	Purchase	110	$20	2200
March 1	Beginning inventory	48	$10	480
	Total	318		$6880

Beginning inventory sales units= Total sales units-March 26 units-March 18 units-March 6 units

= 318-40-120-110= 48 units

Ending inventory= Cost of goods available for sale-Cost of goods sold

= $7400-6880= $520

2) Cost of goods sold is highest under LIFO method as the cost per unit is increasing and under LIFO method, those inventories which are purchase later will be sold earlier and as the costs are increasing, the cost of goods sold under LIFO method is the highest.

3)

Sales (318*$52)	$16536
Less: Cost of goods sold (318*$20)	6360
Gross profit	10176
Less: Operating expenses	3250
Income before income tax	6926
Less: Income tax (6926*36%)	2493
Net income	$4433