Effect of FIFO and LIFO on income statement and balance sheet. Hanover Oil Products

(HOP) operates a gasoline outlet. It commenced operations on January 1. It prices its gasoline at 10 percent above its average purchase price for gasoline. Purchases of gasoline during January, February, and March appear below:

Gallons Purchased January 1 4,000 January 13 6,000 January 28 5,000 Total 15,000 Gallons Purchased February 5 7,000 February 14 6,000 February 21 10,000 Total 23,000 Unit Price Acquisition Cost

$1.40 1.46 1.50

$ 5,600 8,760 7,500

$21,860 Unit Price Acquisition Cost

$1.53 $10,710 1.47 8,820 1.42 14,200

$33,730 Gallons Purchased Unit Price Acquisition Cost March 2 6,000 $1.48 $ 8,880 March 15 5,000 1.54 7,700 March 26 4,000 1.60 6,400 Total 15,000 $22,980 Sales for each month were as follows:
January: $20,840 ( 13.000 gallons)
February: $35,490 (22.000^ gallons) March: $28,648 (17.000 gallons)

a. Compute the cost of goods sold for January using both a FIFO and a LIFO cost flow assumption.

b. Repeat part a for February.

c. Repeat part a for March.

d. Why does the cost flow assumption that provides the largest cost of goods sold amount change each month?

e. Compute the cost of goods sold to sales percentage for each month using both a FIFO and a LIFO cost flow assumption.

f. Which cost flow assumption provides the most stable cost of goods sold to sales percentage over the three months? Explain why this is the case.
g. HOP deliberately allowed its inventory to decline to 1 .000 gallons at the end of March because of the high purchase cost. Assume for this part that HOP had purchased 6.000 gallons on March 26 instead of 4,000. thereby maintaining an ending inventory equal to the beginning inventory for the month of 3,000 gallons. Compute the amount of cost of goods sold for March using both a FIFO and a LIFO cost flow assumption. Why are your answers the same as, or different from, those in part c above? Explain.