Question

please show all work

2. 3. (20 pts) An Oil distributor had 130,000 gallons of oil valued at $3.60/gallon. They bought 120,000 more gallons at $2.70/gallon at equal split, and afterward 128,000 more gallons at $3.80 each. After that, they sold 186,000 gallons at $4.00 each. Their selling and administrative expenses are $20,000 and their tax rate is 40%. Will they pay more taxes if they value their inventory using FIFO or LIFO, and what will be the difference between the two methods? (8 pts) For each of the following activities, identify the function that the accountant is performing. (Attention Directing, Problem Solving, Scorekeeping) A) Analyzing the expected costs of acquiring and using each of two alternate types of welding equipment B) Preparing a report of overtime labor costs by production department. C) Estimating the costs of moving corporate headquarters to another city. D) Interpreting increases in nursing costs per patient-day in a hospital.

Answer 1

Answer to question 2:

As per the working shown below, the tax will be more if we value inventory as per FIFO.

Summary
Particulars	Gallons	$/gallon	Total($)
Opening Stock	130,000	3.60	468,000
Purchase 1	120,000	2.70	324,000
Purchase 2	128,000	3.80	486,400
Sold	186,000	4.00	744,000
Selling & Administration Expenses			20,000
Tax rate			40%

FIFO
Particulars	Gallons	$/gallon	Total($)
Sold                                                                        (A)	186,000	4.00	744,000
Purchase:
Opening Stock                                                (B)	130,000	3.60	468,000
Purchase 1                                                      (C)	56,000	2.70	151,200
Total Purchase                                     (D=B+C)			619,200
Gross Profit                                                 (A-D)			124,800
Selling & Administration Expenses    (E)			20,000
Net Profit                                               (G=E-F)			104,800
Tax @40%                                              (G*40%)			41,920

LIFO
Particulars	Gallons	$/gallon	Total($)
Sold                                                                    (A)	186,000	4.00	744,000
Purchase:
Purchase 2                                                      (B)	128,000	3.80	486,400
Purchase 1                                                      (C)	58,000	2.70	156,600
Total Purchase                                     (D=B+C)			643,000
Gross Profit                                                 (A-D)			101,000
Selling & Administration Expenses    (E)			20,000
Net Profit                                               (G=E-F)			81,000
Tax @40%                                              (G*40%)			32,400

The difference between two methods:

FIFO- First In First Out. It means the inventory which is purchased first will be sold first.

LIFO- Last In First Out. It means the inventory which is purchased last will be sold first and accordingly the inventory will be reduced from the remaining purchased at last.