Question - A business must determine what inventory valuation it will use. Janesville Kayak purchases kayaks and related equipment for resale. Purchased in the month of September are the following kayaks:
|
Date
|
Number of Units
|
Cost per Unit
|
Total Cost
|
|
Beginning inventory
|
34
|
145
|
$4,930
|
|
September 9
|
60
|
152
|
9,120
|
|
September 23
|
256
|
153
|
39,936
|
|
September 29
|
164
|
162
|
26,568
|
|
Total Units available
|
514
|
|
$80,554
|
Assume that 338 units were sold at $245 each. 176 units remain in inventory at September 30.
For FIFO and LIFO methods, set up a chart like this, adding rows and ending with the number of units left (176) and their assigned cost based on the method used:
|
Specific purchase
|
Number of units
|
Cost per Unit
|
Total Cost
|
|
Beginning inventory
|
34
|
145
|
$4,930
|
1. If Janesville Kayak uses the first-in, first-out (FIFO) inventory method (periodic approach), what values would be assigned to ending inventory and cost of goods sold? How much is gross profit?
2. If Janesville Kayak uses the last-in, last-out (LIFO) inventory method (periodic approach), what values would be assigned to ending inventory and cost of goods sold? How much is gross profit?
3. If Janesville Kayak uses the weighted average inventory method (periodic approach), what values would be assigned to ending inventory and cost of goods sold? How much is gross profit?
4. Which of the above techniques produces the highest profit?
5. Which of the above techniques reports the most 'current' cost in measuring income?
6. Which of the above techniques results in the lowest income tax obligation? (the lowest net income)