Question - Junky Auto Supplies began operations in 2012. The company's inventory purchases and sales are asfollows:
| Year |
Units Purchased |
Cost per Unit |
Unit Sold |
|
2012
|
20,000
|
$5
|
4,000
|
|
2013
|
8,000
|
10
|
8,000
|
|
2014
|
7,000
|
15
|
20,000
|
The company's federal income tax rate is 30%. For the year ended Dec 31, 2014, Junky generated $420,000 in revenues and incurred $80,000 in expenses (exclusive of cost of goods sold). Junky uses LIFO.
a. Compute Cost of Goods Sold for 2014 and ending inventory as of Dec 31, 2014 (number of units and$).
b. Compute the company's 2014 income tax liability and net income after taxes for the year ended Dec 31,2014.
c. Assume that Junky was able to purchase an additional 13,000 units of inventory on Dec 31, 2014 for $15 per unit. Should the company purchase these additional units? Explain youranswer.