Question
Free Bird Company began operations on April 1 by selling a single product. Data on purchases and sales for the year are as follows: Purchases
Free Bird Company began operations on April 1 by selling a single product. Data on purchases and sales for the year are as follows:
Purchases:
Total units purchased: 200,000
Total Cost: $8,148,000
Sales:
April 16,000
May 16,000
June 20,000
July 24,000
August 28,000
September 28,000
October 18,000
November 10,000
December 8,000
Total Units 168,000
Total Sales: $10,000,000
The president of the company, Blake Anderson, has asked for your advice on which inventory cost flow method should be used for the 32,000-unit physical inventory that was taken on December 31. The company plans to expand its product line in the future and uses the periodic inventory system. Write a brief memo to Mr. Anderson comparing and contrasting the LIFO and FIFO inventory cost flow methods and their potential impacts on the company's financial statements.
\begin{tabular}{|l|l|l|l|} \hline Date & Units Purchased & Unit Cost & Total Cost \\ \hline April 6 & 31,000 & 36.60 & 1,134,600 \\ \hline May 18 & 33,000 & 39.00 & 1,287,000 \\ \hline June 6 & 40,000 & 39.60 & 1,584,000 \\ \hline July 10 & 40,000 & 42.00 & 1,680,000 \\ \hline August 10 & 27,200 & 42.75 & 1,162,800 \\ \hline October 25 & 12,800 & 43.50 & 556,800 \\ \hline November 4 & 8,000 & 44.85 & 358,800 \\ \hline December 10 & 8,000 & 48.00 & 384,000 \\ \hline \end{tabular}
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