Question

Company XYZ manufactures a tangible product and sells the product at wholesale. In its first year of operations, XYZ manufactured 1,400 units of product and incurred $301,000 direct material cost and $185,500 direct labor costs. For financial statement purposes, XYZ capitalized $140,500 indirect costs to inventory. For tax purposes, it had to capitalize $171,500 indirect costs to inventory under the UNICAP rules. At the end of its first year, XYZ held 140 units in inventory. In its second year of operations, XYZ manufactured 2,800 units of product and incurred $616,000 direct material cost and $392,000 direct labor costs. For financial statement purposes, XYZ capitalized $256,000 indirect costs to inventory. For tax purposes, it had to capitalize $310,000 indirect costs to inventory under the UNICAP rules. At the end of its second year, XYZ held 420 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.

outline for A and B

Answer 1

Answer:

Year-1 (1400 units)

For Book purpose

Total Direct Cost = $301000 +$185500 = $486500

Direct Cost per unit = $486500/1400 = $347.5

Total Indirect Cost = $140500

Indirect Cost per unit = $140500/1400 = $100.36

Full cost per unit = $447.86

For Tax purpose

Total Direct Cost = $301000 +$185500 = $486500

Direct Cost per unit = $486500/1400 = $347.5

Total Indirect Cost = $171500

Indirect Cost per unit = $171500/1400 = $122.5

Full cost per unit = $470

Year-2 (2800 units)

For Book purpose

Total Direct Cost = $616000 +$392000 = $1008000

Direct Cost per unit = $1008000/2800 = $360

Total Indirect Cost = $256000

Indirect Cost per unit = $256000/2800 = $91.43

Full cost per unit = $451.43

For Tax purpose

Total Direct Cost = $616000 +$392000 = $1008000

Direct Cost per unit = $1008000/2800 = $360

Total Indirect Cost = $310000

Indirect Cost per unit = $310000/2800 = $110.71

Full cost per unit = $470.74

A. FIFO method

Particulars	Book	Tax
Cost of Beginning Inventory	$62700.4 [$447.86*140]	$65800 [$470*140]
Total Cost of Units produced	$1264004 [$451.43*2800]	$1318072 [$470.74*2800]
Cost of units available for sale	$1,326,704.4	$1,383,872
Cost of ending inventory	$189600.6 [$451.43*420]	$197710.8 [$470.74*420]
Cost of goods sold	$1,137,103.8	$1,186,161.2

A. LIFO method

Particulars	Book	Tax
Cost of Beginning Inventory	$62700.4 [$447.86*140]	$65800 [$470*140]
Total Cost of Units produced	$1264004 [$451.43*2800]	$1318072 [$470.74*2800]
Cost of units available for sale	$1,326,704.4	$1,383,872
Cost of ending inventory	$189100.8 [$451.43*280+$447.86*140]	$197607.2 [$470.74*280+$470*140]
Cost of goods sold	$1,137,603.6	$1,186,264.8