Question

Company XYZ manufactures a tangible product and sells the product at wholesale. In its first year of operations, XYZ manufactured 1,900 units of product and incurred $456,000 direct material cost and $299,250 direct labor costs. For financial statement purposes, XYZ capitalized $254,250 indirect costs to inventory. For tax purposes, it had to capitalize $285,250 indirect costs to inventory under the UNICAP rules. At the end of its first year, XYZ held 475 units in inventory. In its second year of operations, XYZ manufactured 3,800 units of product and incurred $931,000 direct material cost and $627,000 direct labor costs. For financial statement purposes, XYZ capitalized $491,000 indirect costs to inventory. For tax purposes, it had to capitalize $545,000 indirect costs to inventory under the UNICAP rules. At the end of its second year, XYZ held 760 items in inventory. a. Compute XYZ's cost of goods sold for book purposes and for tax purposes for second year assuming that XYZ uses the FIFO costing convention. b. Compute XYZ's cost of goods sold for book purposes and for tax purposes for second year assuming that XYZ uses the LIFO costing convention. Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B Compute XYZ's cost of goods sold for book purposes and for tax purposes for second year assuming that XYZ uses the LIFO costing convention. (Do not round intermediate calculations.) $ $ Cost of beginning inventory Total cost of units produced Cost of units available for sale Cost of ending inventory Cost of goods sold Book 252,375 2,301,375 X 2,553,750 (617,690) 1,936,060 Tax 260,125 2,363,125 X 2,623,250 (633,745) ► 1,989,505 $ $ $ $

Answer 1

Please find attached table showing LIFO and FIFO computation for two years for both book purpose and tax purpose: References are provided as appropriately for understanding the computation:

Cost of Goods sold = Opening inventory + Purchases (or) manufactured - Closing Inventory

FIFO = Per unit of first purchases (or) opening inventory will be considered as sold.

LIFO = per unit of last purchase will be considered as sold.

Opening inventory Units Per unit Total Units Units Book purpose (FIFO) Units manufactured Per unit Total CEB/A B 240.00 456,000.00 157.50 299,250.00 133.82 254,250.00 Year 1 Direct Material Direct Labor Indirect Cost D 1900 1900 1900 475 475 475 Ending inventory Per unit Total E=D*C 240.00 114,000.00 157.50 74,812.50 133.82 63,562.50 252,375.00 Opening inventory Units Per unit Total C E =D*C Units manufactured / Produced Units Per unit Total F H=G/F Units Ending inventory Per unit Total H 1*H (or) E+G-K Year 2 Direct Material 475 240.00 114,000.00 3800 245.00 931,000.00 760 245.00 186,200.00 Cost of Goods sold (FIFO) Units Per unit Total JED+F-1 C&H (fifo) K=J*c (or) *H 475 240.00 114,000.00 3040 245.00 744,800.00 475 157.50 74,812.50 3040 165.00 501,600.00 475 133.82 63,562.50 3040 129.21 392,800.00 1,891,575.00 Direct Labor 475 157.50 74,812.50 3800 165.00 627,000.00 760 165.00 125,400.00 Indirect Cost 475 133.82 3800 129.21 760 129.21 63,562.50 252,375.00 491,000.00 2,049,000.00 98,200.00 409,800.00 Year 1 Opening inventory Units Per unit Total Units Units TAX Purpose (FIFO) Units manufactured Per unit Total CEB/A 240.00 456,000.00 157.50 299,250.00 150.13 285,250.00 Direct Material Direct Labor Indirect Cost 1900 1900 1900 475 475 475 Ending inventory Per unit Total E=D*C 240.00 114,000.00 157.50 74,812.50 150.13 71,312.50 260,125.00 Year 2 Cost of Goods sold (FIFO) Opening inventory Units Per unit Total D C E=D*C Units manufactured Produced Units Per unit F HEG/F G Total Units Ending inventory Per unit Total 1*H (or) E+G-K Direct Material 475 240.00 114,000.00 3800 245.00 931,000.00 760 245.00 186,200.00 JED+F-1 C&H (fifo) K=J*c (or) *H 475 240.00 114,000.00 3040 245.00 744,800.00 475 L 157.50 74,812.50 3040 165.00 501,600.00 475 150.13 71,312.50 3040 1 43.42 436,000.00 1,942,525.00 Direct Labor 475 157.50 74,812.50 3800 165.00 627,000.00 760 165.00 125,400.00 Indirect Cost 475 150.13 3800 143.42 760 143.42 71,312.50 260,125.00 545,000.00 2,103,000.00 109,000.00 420,600.00

Opening inventory Units Per unit Total Units Units Book purpose (LIFO) Units manufactured Per unit Total CEB/A B 240.00 456,000.00 157.50 299,250.00 133.82 254,250.00 Year 1 Direct Material Direct Labor Indirect Cost D 1900 1900 1900 475 475 475 Ending inventory Per unit Total E=D*C 240.00 114,000.00 157.50 74,812.50 133.82 63,562.50 252,375.00 Opening inventory Units Per unit Total C E=D*C Units manufactured / Produced Units Per unit Total F H=G/F Units Ending inventory Per unit (E+G-K)/ Total E+G-K Year 2 Direct Material 475 240.00 114,000.00 3800 245.00 931,000.00 760 241.88 183,825.00 Cost of Goods sold (LIFO) Units Per unit Total JED+F-1 H(lifo) K= J*H 0 240.00 3515 245.00 861,175.00 0 157.50 3515 165.00 579,975.00 0 133.82 3515 129.21 454,175.00 1,895,325.00 Direct Labor 475 157.50 74,812.50 3800 165.00 627,000.00 760 160.31 121,837.50 Indirect Cost 475 133.82 3800 129.21 760 132.09 63,562.50 252,375.00 491,000.00 2,049,000.00 100,387.50 406,050.00 Year 1 Opening inventory Units Per unit Total Units Units TAX Purpose (LIFO) Units manufactured Per unit Total | CEB/A 240.00 456,000.00 157.50 299,250.00 150.13 285,250.00 Direct Material Direct Labor Indirect Cost 1900 1900 1900 475 475 475 Ending inventory Per unit Total E=D*C 240.00 114,000.00 157.50 74,812.50 150.13 71,312.50 260,125.00 Year 2 Cost of Goods sold (LIFO) Opening inventory Units Per unit Total D C E=D*C Units manufactured Produced Units Per unit Total H=G/F Units I Ending inventory Per unit (E+G-K) / Total E+G-K F K= J*H Direct Material 475 240.00 114,000.00 3800 245.00 931,000.00 760 241.88 183,825.00 861,175.00 JED+F-1 O 3515 O 3515 0 3515 (lifo) 240.00 245.00 157.50 165.00 150.13 143.42 Direct Labor 475 157.50 74,812.50 3800 165.00 627,000.00 760 160.31 121,837.50 579,975.00 Indirect Cost 475 150.13 3800 143.42 760 147.62 71,312.50 260,125.00 545,000.00 2,103,000.00 112,187.50 417,850.00 504,125.00 1,945,275.00

Based on above table, here's the summary for year 2 - under FIFO & LIFO:

Cost of Beginning Inventory A Cost of units produced B Cost of units available for sale |C=A+B Cost of ending inventory D Cost of goods sold C-D Year 2 (FIFO) Book Tax 252,375.00 260,125.00 2,049,000.00 2,103,000.00 2,301,375.00 2,363,125.00 4 09,800.00 420,600.00 1,891,575.00 1,942,525.00 Cost of Beginning Inventory A Cost of units produced B Cost of units available for sale (C=A+B Cost of ending inventory D Cost of goods sold C-D Year 2 (LIFO) Book Tax 252,375.00 260,125.00 2,049,000.00 2,103,000.00 2,301,375.00 2,363,125.00 406,050.00 417,850.00 1,895,325.00 1,945,275.00