Question
At the beginning of the current period, Hutton Company holds 1,000 units of its only product with a per-unit cost of $18. A summary of
At the beginning of the current period, Hutton Company holds 1,000 units of its only product with a per-unit cost of $18. A summary of purchases during the current period follows:
Units Unit Cost Cost
Beginning Inventory 1,000 $18.00 $18,000
Purchases: #1 1,800 18.25 32,850
#2 800 18.50 14,800
#3 1,200 19.00 22,800
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Goods Available for Sale 4,800 $88,450
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During the current period, Hutton sells 2,800 units.
Required:
- Assume that Hutton uses the first-in, first-out (FIFO) method. Compute the cost of goods sold for the current period and the ending inventory balance.
- Assume that Hutton uses the last-in, first-out (LIFO) method. Compute the cost of goods sold for the current period and the ending inventory balance.
- Assume that Hutton uses the average cost (AC) method. Compute the cost of goods sold for the current period and the ending inventory balance.
- As manager, which of these three inventory costing methods would you choose:
- To reflect what is probably the physical flow of goods? Explain.
- To minimize income taxes for the period? Explain.
- Assume that Hutton utilizes the LIFO method and instead of purchasing lot #3, the company allows its inventory level to decline and delays purchasing lot #3 until the next period. Compute the
cost of goods sold under this scenario and discuss the effect of end-of-year purchases under LIFO.
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