HW#7 - sheet valuation of inventory in light of current...

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Anthony Marsala ACC201 Sec. 24 Homework #7 A. Units Sold 8,000 @ 12.00 = $96,000 7,000 @ 11.00 = $77,000 Total Revenue = $173,000 Total Cost of Inventory = $97,200 1. FIFO (15,000 units sold) 2,000 @ 6.10 = $12,200 10,000 @ 5.50 = $55,000 3,000 @ 5.00 = $15,000 Total COGS = $82,000 E/I (December 31) $97,200 - $82,000 = $15,200 Gross Profit $173,000 - $82,000 = $91,000 2. LIFO (15,000 units sold) 6,000 @ 5.00 = $30,000 9,000 @ 5.50 = $49,500 Total COGS = $79,500 E/I (December 31) $97,200 - $79,500 = $17,700 Gross Profit $173,000 - $79,500 = $93,500 3. Weighted Average (15,000 units sold) Cost of Goods Available for Sale = $97,200 Number of Units Available for Sale = 18,000 Average Cost = $5.40 Total COGS 15,000 x $5.40 = $81,000 E/I (December 31) $97,200 - $81,000 = $16,200 Gross Profit $173,000 - $81,000 = $92,000
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B. Since Altera has decreasing cost inventories, FIFO provides the most realistic balance
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Unformatted text preview: sheet valuation of inventory in light of current replacement cost. Current replacement cost is reflected by the most recent unit cost of inventory. Therefore the company will want to sell its more expensive units as soon as possible to reduce its replacement cost. C. No, LIFO would produce a more realistic measure of income in light of the costs being incurred by Altera because the most realistic measure of cost is from the newest inventory. D. Altera, Inc would use FIFO if they wanted to defer their income taxes as long as possible because they have decreasing cost inventories which means the first inventory units purchased were the most expensive. Therefore they want to sell this inventory first because it produces a higher cost of goods sold and consequently a lower pretax income....
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This note was uploaded on 10/04/2011 for the course ACC 201 taught by Professor Bokmier during the Fall '10 term at Michigan State University.

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HW#7 - sheet valuation of inventory in light of current...

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