# Total expenses 9800 9800 9800 income before taxes

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Total expenses 9,800 9,800 9,800 Income before taxes 2,800 2,350 2,657 Income tax expense 840 705 797 Net income 1,960 \$ 1,645 \$ 1,860 \$ Ending Inventory 1,950 \$ 1,500 \$ 1,807 \$ Notice that, when costs are increasing, gross profit, net income and income taxes are lowest under LIFO, highest under FIFO, and somewhere in the middle under average cost. Also, Ending Inventory is lowest under LIFO, highest under FIFO, and somewhere in the middle under average cost.

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8-9 Perpetual Inventory Perpetual Inventory FIFO FIFO + Example – Cost Flow Assumptions June 15 Sale Cost of Goods Sold 200 @ \$10 2,000 \$ 300 @ \$12 3,600 \$ 5,600 \$ Ending Inventory 100 @ \$12 1,200 \$ June 27 Sale Cost of Goods Sold 100 @ \$12 1,200 \$ 300 @ \$13 3,900 \$ 5,100 \$ Ending Inventory 150 @ \$13 1,950 \$ Total Cost of Goods Sold for June = \$5,600 + \$5,100 = \$10,700 FIFO Cost of Goods Sold and Ending Inventory are the same under the Perpetual and Periodic Systems.
8-10 Perpetual Inventory Perpetual Inventory LIFO LIFO + Example – Cost Flow Assumptions June 15 Sale Cost of Goods Sold 400 @ \$12 4,800 \$ 100 @ \$10 1,000 \$ 5,800 \$ Ending Inventory 100 @ \$10 1,000 \$ June 27 Sale Cost of Goods Sold 400 @ \$13 5,200 \$ 5,200 \$ Ending Inventory [email protected] 650 \$ 100 @ \$10 1,000 \$ 1,650 \$ Total Cost of Goods Sold for June = \$5,800 + \$5,200 = \$11,000 LIFO Cost of Goods Sold and Ending Inventory are NOT the same under the Perpetual and Periodic Systems.

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8-11 June 15 Sale Goods Available 200 @ \$10 2,000 \$ 400 @ \$12 4,800 \$ 6,800 \$ Average Cost/unit \$6,800 / 600 11.33 \$ COGS (500 * 11.3333) 5,667 \$ Ending Inventory 1,133 \$ Perpetual Inventory Perpetual Inventory Moving Average Moving Average + Example – Cost Flow Assumptions June 27 Sale Goods Available 450 @ \$13 5,850 \$ 100 @ \$11.33 1,133 \$ 6,983 \$ Average Cost/Unit = \$6,983 / 550 12.70 \$ COGS (400 * 12.696363) 5,079 \$ Ending Inventory 1,904 \$ A new average cost per unit is determined after each purchase. Total Cost of Goods Sold for June = \$5,667 + \$5,079 = \$10,746
8-12 Financial Statement Summary – Perpetual Method FIFO LIFO Average Sales 23,300 \$ 23,300 \$ 23,300 \$ Cost of goods sold 10,700 11,000 10,746 Gross profit 12,600 12,300 12,554 Operating expenses: Administrative 4,500 4,500 4,500 Selling 5,300 5,300 5,300 Total expenses 9,800 9,800 9,800 Income before taxes 2,800 2,500 2,754 Income tax expense 840 750 826 Net income 1,960 \$ 1,750 \$ 1,928 \$ Ending Inventory 1,950 \$ 1,650 \$ 1,904 \$ Notice that, when costs are increasing, gross profit, net income and income taxes are lowest under LIFO, highest under FIFO, and somewhere in the middle under average cost.

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• Spring '13
• Brown
• Goods Sold

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