Question

Chapter 8 - Extra Credit A Saved 00 Brief Exercise 8-9 LIFO method [LO8-4] 0.83 points AAA Hardware uses the LIFO method to value its inventory. Inventory at the beginning of the year consisted of 21,000 units of the company's one product. These units cost $10 each. During the year, 71,000 units were purchased at a cost of $13 each and 72,000 units were sold. Near the end of the fiscal year, management is considering the purchase of an additional 8,000 units at $13. Required: 1. What would be the effect of this purchase on income before income taxes? 2. What would be the effect of this purchase on income before income taxes using FIFO method? eBook Print 1. Income before income taxes would be 2. Income before income taxes would be References

Answer 1

Answer:

1.Under LIFO Method, Cost of goods sold with out Additional purchase
	Units	Price per unit	Cost of goods sold
Sales in Units	72,000
sales from purchase (71000 units)	71,000	$13	9,23,000
Sales from Opening Stock	1,000	$10	10,000
Cost of goods sold			9,33,000
Under LIFO Method, Cost of goods sold with Additional purchase
	Units	Price per unit	Cost of goods sold
Sales in Units	72,000
sales from Additional purchase 8000 units	8,000	$13	1,04,000
Sales from Purchases (72000-8000)	64,000	$13	8,32,000
Cost of goods sold			9,36,000
if the additional Purchase made under LIFO method , then the cost of goods sold will increase by $3000 (936,000-933,000), then Profit will decreased by $3000
2.Under FIFO Method, Cost of goods sold with out Additional purchase
	Units	Price per unit	Cost of goods sold
Sales in Units	72,000
Sales from Opening Stock	21,000	$10	2,10,000
sales from purchase (72000-21000)	51,000	$13	6,63,000
Cost of goods sold			8,73,000
Under FIFO Method, Cost of goods sold with Additional purchase
	Units	Price per unit	Cost of goods sold
Sales in Units	72,000
Sales from Opening Stock	21,000	$10	2,10,000
sales from purchase (72000-21000)	51,000	$13	6,63,000
Cost of goods sold			8,73,000
if the additional Purchase made under FIFO method , then the cost of goods sold Does not change , then No effect on Profit by making additional Purchases