Shepard Company sold 4,000 units of its product at $100 per unit during the year and incurred operating expenses of $15 per unit in selling the units. It began the year with 840 units in inventory and made successive purchases of its product as follows. Jan. 1 Beginning inventory . 840 units @ $58 per unit Apr. 2 Purchase . 600 units @ $59 per unit June 14 Purchase . 1,205 units @ $61 per unit Aug. 29 Purchase . 700 units @ $64 per unit Nov. 18 Purchase . 1,655 units @ $65 per unit Total . 5,000 units Required 1. Prepare comparative income statements similar to Exhibit 6.8 for the three inventory costing methods of FIFO, LIFO, and weighted average. (Round all amounts to cents.) Include a detailed cost of goods sold section as part of each statement. The company uses a periodic inventory system, and its income tax rate is 40%. 2. How would the financial results from using the three alternative inventory costing methods change if the company had been experiencing decreasing prices in its purchases of inventory? 3. What advantages and disadvantages are offered by using (a) LIFO and (b) FIFO? Assume the continuing trend of increasing costs.
Shepard Company sold 4,000 units of its product at $100 per unit during the year and incurred operating
expenses of $15 per unit in selling the units. It began the year with 840 units in inventory and made successive
purchases of its product as follows. Jan. 1 Beginning inventory . 840 units @ $58 per unit
Apr. 2 Purchase . 600 units @ $59 per unit
June 14 Purchase . 1,205 units @ $61 per unit
Aug. 29 Purchase . 700 units @ $64 per unit
Nov. 18 Purchase . 1,655 units @ $65 per unit
Total . 5,000 units Required
1. Prepare comparative income statements similar to Exhibit 6.8 for the three inventory costing methods of
FIFO, LIFO, and weighted average. (Round all amounts to cents.) Include a detailed cost of goods sold section
as part of each statement. The company uses a periodic inventory system, and its income tax rate is 40%.
2. How would the financial results from using the three alternative inventory costing methods change if
the company had been experiencing decreasing prices in its purchases of inventory?
3. What advantages and disadvantages are offered by using (a) LIFO and (b) FIFO? Assume the continuing
trend of increasing costs.
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 8 images
