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Cost of the ending inventory and the cost of goods sold

Jones Company had 100 units in beginning inventory at a total cost of $10,000. The company purchased 200 units at a total cost of $26,000. At the end of the year, Jones had 80 units in ending inventory.

Instructions:
(a) Compute the cost of the ending inventory and the cost of goods sold under: (1) FIFO, (2) LIFO, and (3) average-cost.
(b) Which cost flow method would result in the highest net income?
(c) Which cost flow method would result in inventories approximating current cost in the balance sheet?
(d) Which cost flow method would result in Jones paying the least taxes in the first year?

Solution Preview

(a) Compute the cost of the ending inventory and the cost of goods sold under: (1) FIFO, (2) LIFO, and (3) average-cost.
(1) FIFO (First In First Out)
Ending Inventory in Units= 80 units
Cost will be identified from the recent purchases which are 200 units at the total cost of $26000.
Hence cost per unit =26000/200= 130 per unit
Cost of Ending Inventory =80*130
=$10400
(2) LIFO (Last in First Out)
Ending ...

Solution Summary

Solution helps in computing cost of the ending inventory and the cost of goods sold

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