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The management of Vaughn Group is reevaluating the appropriateness of using its present inventory cost flow method. They request your help in determining the results
The management of Vaughn Group is reevaluating the appropriateness of using its present inventory cost flow method. They request your help in determining the results of operations for 2020 if either the FIFO method or the average-cost method had been used. For 2020, the accounting records show the following data. Inventories Purchases and Sales Beginning (10,800 units) 24,624 Total net sales (243,000 units) 934,200 Ending (16,200 units) Total cost of goods purchased (248,400 units) 649,620 Purchases were made quarterly as follows. Quarter Units Unit Cost Total Cost 1 64,800 2.40 155,520 2 54,000 2.60 140,400 3 54,000 2.70 145,800 4 75,600 2.75 207,900 248,400 649,620 Operating expenses were 202,860, and the company's income tax rate is 32%. VAUGHN GROUP Condensed Income Statement For the Year Ended December 31, 2020 FIFO Total Sales Revenues Cost of Goods Sold Beginning Inventory Cost of Goods Purchased Cost of Goods Available for Sale Ending Inventory Cost of Goods Sold Gross Profit Operating Expenses 934200 Average-cost 934200 24624 24624 649620 649620 Cost of Goods Available for Sale Ending Inventory Cost of Goods Sold Gross Profit Operating Expenses Income before Income Taxes Income Tax Expense Net Income/(Loss) Which cost flow method (FIFO or average-cost) produces the more meaningful inventory amount for the statement of financial position? FIFO method produces the more meaningful inventory amount. Which cost flow method (FIFO or average-cost) is more likely to approximate actual physical flow of the goods? Average-cost method is most likely to approximate actual physical flow. How much additional cash will be available for management under average-cost than under FIFO? Additional cash will be available for management
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