Question

At the beginning of the current period, Chen carried 1,000 units of its product with a unit cost of $40. A summary of purchases during the current period follows. During the period, Chen sold 2,800 units.

Units Unit Cost Cost
Beginning Inventory 1,000 $ 40 $ 40,000
Purchase #1 1,800 44 79,200
Purchase #2 800 52 41,600
Purchase #3 1,200 58 69,600

Which of these three inventory costing methods would you choose to:

1. Reflect what is probably the physical flow of goods?
(A) LIFO
(B) FIFO
(C) Average Cost

2. Minimize income taxes for the period?
(A) LIFO
(B) FIFO
(C) Average Cost

3. Report the largest amount of income for the period?
(A) LIFO
(B) FIFO
(C) Average Cost

Answer 1

Answer:

1. Reflect what is probably the physical flow of goods?

(A) LIFO                     146200    

(B) FIFO                     119600

(C) Average Cost      134400

2. Minimize income taxes for the period?

(A) LIFO                 higuer Cost less tax

(B) FIFO                      

(C) Average Cost

3. Report the largest amount of income for the period?

(A) LIFO

(B)   FIFO lower cost higuer income

(C) Average Cost

Explanation:

FIFO                  Unit C/Unit C/inventory  Cost

Beggining Inve 1000 40 40000 1000 40000

Purchase         1800 44 79200 1800 79200

Purchase          800 52 41600 0 0

Purchase         1200 58 69600 0 0

                       4800  230400 2800 119200

                                            2800 119200

     

LIFO                        Unit C/Unit C/inventory  Cost

Beggining Inve 1000 40 40000 0  0

Purchase         1800 44 79200 800   35200

Purchase          800 52 41600 800   41600

Purchase          1200 58 69600 1200  69600

                         4800  230400 2800 146400

                                           2800  146400

     

AVERAGE Unit C/Unit C/inventory  Cost

Beggining Inve 1000 40 40000 0 0

Purchase 1800 44 79200  0

2800 43 119200  

Purchase 800 52 41600  0

3600 45 160800  

Purchase 1200 58 69600  0

4800 48 230400 2800 134400

   2800 134400