Steel Specialties has been in business for 52 years. Thecompany maintains a perpetual inventory system, uses a LIFO flowassumption, and ends its fiscal year at December 31. At the yearend, the cost of goods sold and inventory are adjusted to reflectperiodic LIFO costing procedures.
A railroad strike has delayed the arrival of purchases orderedduring the past several months of 2001, and Steel Specialties hasnot been able to replenish its inventories as merchandise is sold.At December 22, 2006 one product appears in thecompany's perpetual inventory records at the following unitcosts:
PurchaseDate Quantity UnitCost Total Cost
Nov. 14,1954 3,000 Rs.6 Rs. 18,000
Apr. 12,1955 2,000 8 16,000
Available for sale at Dec.22, 5,000 Rs. 34,000
2001
Steel Specialties has another 8,000 units of this product onorder at the current wholesale cost of Rs. 30 per unit. Due to therailroad strike, however, these units have not yet arrived (theterms of purchase are F.O.B. destination). Steel Specialties alsohas been an order from a customer who wants to purchase 4,000 unitsof this product at the retail sales price of Rs. 45 per unit. SteelSpecialties intends to make this sale on December 30, regardless ofwhether the 8,000 units or order arrive by this date. (The 4,000unit sale will be shipped by truck, F.O.B. shipping point.)
Requirements:
a) Are the units in inventory really almost 50 years old?Explain.
b) Prepare a schedule showing the sales revenue, cost ofgoods sold, and gross profit that will result from this sale onDecember 30, assuming that the 80,000 units currently on order (1) arrive beforeyear ends and (2) do not arrive until som time in the following year. In eachcomputation, show the number of units comprising the cost of goods soldand their related per unit costs.
c) Comment on the results obtained in the part (b).
d) Management should delay this sale by a few days or not?Explain the reasons for your answer.