HW#3 solution (4)(1)

# HW#3 solution (4)(1) - Homework #3 Solution Question 1 a....

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Homework #3 Solution Question 1 a. Cost of inventory purchased during 2003: \$3,600,000 / 5,000 units = \$720/unit (don’t include selling commissions in inventory cost) COGS = (5,000 x \$720) + (1,000 x \$400) = \$4,000,000 b. Units available for sale = 5,000 (BI) + 5,000 (purchased) = 10,000 Units in EI = 10,000 - 6,000 (sold) = 4,000 EI = 4,000 x \$720 = \$2,880,000 Question 2 a. 2004 Index = EI at current prices EI at base year prices 2004 Index = (450 x \$3) + (1,200 x \$6) = \$8,550 (450 x \$2) + (1,200 x \$5) = \$6,900 2004 Index = 1.24 b. Layer added in 2004 = 6,900 - 5,100 = \$1,800 EI = 5,100 + (1,800 x 1.24) = \$7,332 Question 3 a.12/31/04 LIFO Reserve = 3,420,000 - 3,020,000 = 400,000 Cumulative difference between FIFO and LIFO = 400,000 x .40 = 160,000 \$160,000 LESS tax paid since adoption of LIFO b. 2004 COGS Effect = Change in LIFO Reserve during the current year 2004 COGS Effect = 400,000 - 450,000 = (50,000) 2004 tax Income is \$50,000 HIGHER because LIFO is used c. Average tax benefit per year

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## This note was uploaded on 01/20/2012 for the course ECON 380 taught by Professor Joyce during the Spring '11 term at University of Ottawa.

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HW#3 solution (4)(1) - Homework #3 Solution Question 1 a....

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