Question

QP Corp. sold 5,420 units of its product at $45.80 per unit during the year and incurred operating expenses of $6.80 per unit in selling the units. It began the year with 680 units in inventory and made successive purchases of its product as follows. Jan. 1 Beginning inventory Feb. 20 Purchase May 16 Purchase Oct. 3 Purchase Dec. 11 Purchase Total 680 units @ $18.80 per unit 1,580 units @ $19.80 per unit 780 units @ $20.80 per unit 480 units @ $21.80 per unit 3,380 units @ $22.80 per unit 6,900 units Required: 1. Prepare comparative income statements for the three inventory costing methods of FIFO, LIFO, and weighted average which includes a detailed cost of goods sold section as part of each statement. The company uses a periodic inventory system, and its income tax rate is 40%. (Round your average cost per unit to 2 decimal places.)
please, explain all the answers!

Answer 1

Ans. QP CORP. Income Statement Comparing FIFO, LIFO and Weighted Average For the Year Ended December 31 FIFO LIFO Weighted Average Sales $248,236 $248,236 $248,236 Cost of goods sold : Beginning inventory, Jan. 1 $12,784 $12,784 $12,784 Cost of purchases $135,036 $135,036 $135,036 Cost of goods available for sale $147,820 $147,820 $147,820 Less: Inventory, Dec. 31 -$33,744 -$28,624 -$31,706 Cost of goods sold $114,076 $119,196 $116,114 Gross profit $134,160 $129,040 $132,122 Operating expenses $36,856 -$36,856 -$36,856 Income before taxes (a) $97,304 $92,184 $95,266 Income tax expenses (a*0.40) $38,922 -$36,874 $38,106 Net income $58,382 $55,310 $57,160 *Working Notes: Step 1 : Calculations of Sales: Sales = Units sold * Selling price 5,420 * $45.80 $248,236

Step 2: Calculations of Operating expenses: Operating expenses = Units sold * Expenses per unit 5,420 * $6.80 $36,856 Step 3: Calculations of Ending inventory: Ending inventory units = Total units avaialble - Units sold 6,900 -5,420 = 1,480 units FIFO: Cost of goods available for sale Units Rate Total 680 $18.80 $12,784 Cost of goods sold - Periodic FIFO Units Rate Total 680 $18.80 $12,784 Ending inventory - Periodic FIFO Units Rate Total $18.80 $0 Beginning inventory Purchases: 20-Feb 16-May 03-Oct 11-Dec Total 0 $o 1580 780 480 3380 6900 $19.80 $20.80 $21.80 $22.80 $31,284 $16,224 $10,464 $77,064 $147,820 1580 780 480 1900 5420 $19.80 $20.80 $21.80 $22.80 $31,284 $16,224 $10,464 $43,320 $114,076 $19.80 $20.80 $21.80 $22.80 1480 1480 $0 $33,744 $33,744 *In FIFO method the units that have purchased first, are released the first one and the ending inventory units remain from the last purchases.

LIFO: Cost of goods available for sale Units Rate Total 680 $18.80 $12,784 Cost of goods sold - Periodic LIFO Units Rate Total $18.80 Ending inventory - Periodic LIFO Units Rate Total 680 $18.80 $12,784 SO Beginning inventory Purchases: 20-Feb 16-May 03-Oct 11-Dec Total 800 0 1580 780 480 3380 6900 $ 15,840 $0 $19.80 $20.80 $21.80 $22.80 $31,284 $16,224 $10,464 $77,064 $147,820 780 780 480 3380 5420 $19.80 $20.80 $21.80 $22.80 $15,444 $16,224 $10,464 $77,064 $119,196 $19.80 $20.80 $21.80 $22.80 1480 $28,624 *In LIFO method the units that have purchased last, are released the first one and ending inventory units remain from the first purchase. Weighted Average cost: Cost of goods available for sale Units Rate Total 680 $18.80 $12,784 Cost of goods sold - Periodic Average cost Units Rate Total Ending inventory - Periodic Average cost Units Rate Total Beginning inventory Purchases: 20-Feb 16-May 03-Oct 11-Dec Total 1580 780 480 3380 6900 $19.80 $20.80 $21.80 $22.80 $31,284 $16,224 $10,464 $77,064 $147,820 5420 $21.42 $116,114 1480 $21.42 $31,706 Average cost per unit = Total cost of goods available for sale / Units available for sale $147,820 / 6,900 $21.42 per unit