Overton Company uses a perpetual inventory system for its single product. Its beginning inventory, purchases and sales during calendar year 2021 follow. Jan 1 Beginning inventory $5,600 Jan 15 Sold 200 units @ $30.00 March 10 Purchase 200 units @ $15 April 1 Sold 200 units @ $30 May 9 Purchased 300 units @ $16 Sept 22 Purchase 250 units @ $20 Nov 1 Sold 300 units @ $35 Nov 28 Purchased 100 units @21 Given that expenses after gross profit totalled $ 5,000.00, compute the gross and net profit earned by the company under the LIFO and AVCO costing methods. If the company had used the FIFO inventory costing method, cost of goods sold under FIFO would have been $ 10,200.00. Management wants a report that shows how changing from FIFO to another method would change net income. Prepare a table showing (1) the amount by which cost of goods sold under LIFO and AVCO is different from the FIFO cost of goods sold and ( 2) the effect on net income when LIFO and AVCO are used instead of FIFO. When costs are rising, what is the effect of the FIFO inventory valuation approach on cost of goods sold, gross profit and net income? Why?

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Overton Company uses a perpetual inventory system for its single product. Its beginning inventory, purchases and sales during calendar year 2021 follow.

Jan 1    Beginning inventory $5,600

Jan 15   Sold 200 units @ $30.00

March 10 Purchase 200 units @ $15

April 1 Sold 200 units @ $30

May 9 Purchased 300 units @ $16

Sept 22 Purchase 250 units @ $20

Nov 1 Sold 300 units @ $35

Nov 28 Purchased 100 units @21

  1. Given that expenses after gross profit totalled $ 5,000.00, compute the gross and net profit earned by the company under the LIFO and AVCO costing methods.
  2. If the company had used the FIFO inventory costing method, cost of goods sold under FIFO would have been $ 10,200.00. Management wants a report that shows how changing from FIFO to another method would change net income. Prepare a table showing (1) the amount by which cost of goods sold under LIFO and AVCO is different from the FIFO cost of goods sold and ( 2) the effect on net income when LIFO and AVCO are used instead of FIFO.
  3. When costs are rising, what is the effect of the FIFO inventory valuation approach on cost of goods sold, gross profit  and net income? Why?

 

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