Two sisters, Susan Green and Carol Lewis, were interested in starting part-time business activities to supplement their
Question:
Two sisters, Susan Green and Carol Lewis, were interested in starting part-time business activities to supplement their family incomes. Both heard a presentation by the manufacturer of an exercise device and decided to become a distributor of this exerciser. Green's sales territory is Cobb County, and Lewis's sales territory is Gwinett County. Each owns her own business.
To induce Green and Lewis to become distributors, the manufacturer made price concessions on the first 1,000 units that each sister purchased. The manufacturer sold the first 200 units at \(\$ 15\) each, the next 300 at \(\$ 18\) per unit, and the next 500 at \(\$ 19\) per unit. After that, Green and Lewis had to pay \(\$ 20\) per unit.
During the first year, each sister bought 1,200 units; coincidentally, both sold exactly 950 units for \(\$ 27\) each. Green had \(\$ 2,600\) of selling expenses; Lewis incurred \(\$ 1,700\) of selling expenses. (Green's expenses were considerably higher because on December 28 she distributed 4,000 sales brochures to households in her territory at a cost of \(\$ 800\). The brochures stressed that people would want to take off the extra pounds gained during the holiday season; also, these exercisers were inexpensive and could be used at home.)
At the end of the year, both sisters had to determine their net incomes. Green received a B in the accounting course she took at State University. She remembered the FIFO inventory method and plans to use it. Lewis knows nothing about inventory costing methods. However, her husband is acquainted with the LIFO inventory method used at the company where he works. He will help her compute the cost of the ending inventory and the cost of goods using LIFO.
a. Prepare income statements for Green and Lewis.
b. Which sister's business has performed better? Explain why.
c. Determine the inventory turnovers for both sisters.
Step by Step Answer:
Financial Accounting A Business Perspective
ISBN: 9780072289985
7th Edition
Authors: Roger H. Hermanson, James Don Edwards