Question
Suppose Sonics Inc. just started business this period. The firm purchased 400 units during the period at various prices as follows: Date Units Unit Cost
Suppose Sonics Inc. just started business this period. The firm purchased 400 units during the period at various prices as follows:
Date | Units | Unit Cost | Total |
January | 100 | $10 | $1,000 |
March | 100 | $12 | $1,200 |
June | 100 | $14 | $1,400 |
October | 100 | $15 | $1,500 |
Total | 400 |
| $5,100 |
The firm sold 250 units at $30 each on the following dates:
Date | Units | Unit Price | Total Sales |
February | 75 | $30 | $2,250 |
May | 90 | $30 | $2,700 |
August | 75 | $30 | $2,250 |
December | 10 | $30 | $300 |
Total | 250 | $30 | $7,500 |
Required (assume the firm faces a marginal tax rate of 35%):
a. Calculate taxable income and taxes payable assuming the firm uses FIFO (first-in, first-out) for inventory costing purposes.
b. Calculate taxable income and taxes payable assuming the firm uses LIFO (last-in, first-out) for inventory costing purposes.
Discuss your results, including any nontax costs that might be associated with either inventory costing system.
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