Alex Wholesalers, Inc. began its business on January 1, 2008. Information on its inventory purchases and sales during 2008 follow:
|
Inventory Purchases |
||||
|
Units |
Cost per Unit |
Total |
||
|
January 1 |
10,000 |
$4.00 |
$ 40,000 |
|
|
March 10 |
8,000 |
4.10 |
32,800 |
|
|
April 12 |
12,000 |
4.30 |
51,600 |
|
|
September 15 |
7,500 |
4.45 |
33,375 |
|
|
November 11 |
6,000 |
4.75 |
28,500 |
|
|
December 29 |
6,500 |
5.00 |
32,500 |
|
|
Units available for sale |
50,000 |
$218,775 |
||
|
Inventory Sales |
||||
|
Units |
Price per Unit |
Total |
||
|
March 1 |
7,000 |
$8.00 |
$ 56,000 |
|
|
September 1 |
20,000 |
8.50 |
170,000 |
|
|
December 1 |
11,000 |
9.00 |
99,000 |
|
|
Units sold |
38,000 |
$325,000 |
||
Assume a tax rate of 40%.
Required:
1. Compute the cost of ending inventory and cost of goods sold under each of the following methods: (1) FIFO, (2) Weighted average cost, and (3) LIFO. Assume that Alex uses the periodic inventory procedure.
2. Assume that Alex uses the periodic LIFO method.
a. Calculate the replacement cost of the ending inventory and the LIFO reserve as of year-end. You may assume that year-end purchase cost was still $5 per unit.
b. Estimate Alex’s cost of goods sold under the periodic FIFO method based only on the information that will be publicly available to Alex’s investors. Explain why your answer differs from FIFO cost of goods sold computed in requirement 1.
c. Alex’s purchasing manager was planning to acquire 10,000 units of inventory on January 5, 2009 at $5 per unit. Its accountant suggests that the company will be better off if it acquires the inventory instead on December 31, 2008. What are the pros and cons of the accountant’s suggestion? Wherever possible, show supporting calculations.
3. Calculate cost of goods sold assuming that Alex uses the perpetual FIFO method.
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