Spice, Inc., began October with 100 shirts that cost $76 each. During October, the store made the following purchases at cost:
Spice sold 500 shirts and ended October with 130 shirts. The sale price of each shirt was $130.
|
Oct. 3
|
200 @ $81
|
=
|
16200
|
|
12
|
90 @ 82
|
=
|
7380
|
|
24
|
240 @ 85
|
=
|
20400
|
Required
1. Determine the cost of goods sold and ending inventory amounts by the average, FIFO, and LIFO cost methods. Round average cost per unit to 3 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 Spice's income statement for October. Report gross profit. Operating expenses totaled $10,000. Spice uses the LIFO method for inventory. The income tax rate is 40%.
Inventory
|
Jan. 1
|
Balance
|
300 cases @ $300
|
121,500
|
| |
|
100 cases @ 315
|
|
|
May 19
|
Purchase
|
600 cases @ 335
|
201,000
|
|
Aug.12
|
Purchase
|
400 cases @ 350
|
140,000
|
|
Oct.4
|
Purchase
|
700 cases @ 370
|
259,000
|
|
Sales Revenue
|
|
Dec. 31
|
1,800 cases
|
910,000
|
Required
1. Prepare a partial income statement through gross profit under the average, FIFO, and LIFO cost methods. Round average cost per unit to 4 decimal places and all other amounts to the nearest dollar.
2. Which inventory method would you use to report the highest net income? Explain why this method produces the highest reported income.