Inventory, January 1 (10,000 units) £35,000 Cost of 120,000 units purchased Selling price of 105,000 units sold Operating expenses 501,000 695,000 130,000
The management of Tudor Living asks for your help in determining the comparative
effects of the FIFO and average-cost inventory cost flow methods. For 2020, the
accounting records provide the data shown below.
Units purchased consisted of 40,000 units at £4.00 on May 10; 60,000 units at £4.20 on
August 15; and 20,000 units at £4.45 on November 20. Income taxes are 28%.
Instructions
a.Prepare comparative condensed income statements for 2020 under FIFO and
average cost. (Show computations of ending inventory.)
b.Answer the following questions for management:
1.Which inventory cost flow method produces the more meaningful inventory amount
for the
2.Which inventory cost flow method is more likely to approximate the actual physical
flow of the goods? Why?
3.How much more cash will be available for management under average-cost than
under FIFO? Why?
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