Chapter 6, Problem 6.62AP

LO 2

(Learning Objective 2: Compare inventory by three methods) Navy Surplus began July 2018 with 80 stoves that cost $10 each. During the month, the company made the following purchases at cost:

July 6	90 stoves @ $20 = $ 1, 800
18	100 stoves @ $25 = 2,500
26	30 stoves @ $30 = 900

The company sold 250 stoves, and at July 31, the ending inventory consisted of 50 stoves. The sales price of each stove was $52.

Requirements

  1.    Determine the cost of goods sold and ending inventory amounts for July under the average-cost, FIFO, and LIFO costing methods Round the average cost per unit to two decimal places, and round all other amounts to the nearest dollar.

  2.    Explain why cost of goods sold is highest under LIFO. Be specific.

  3.    Prepare the Navy Surplus income statement for July. Report gross profit. Operating expenses totaled $3,250. The company uses average costing for inventory. The income tax rate is 40%.