question archive Assignment Q3) The management of Reiko Co
Assignment Q3) The management of Reiko Co
Subject:AccountingPrice: Bought3
Assignment Q3) The management of Reiko Co. is reevaluating the appropriateness of using its present inventory cost flow method, which is average-cost. They request your help in determining the results of operations for 2019 if either the FIFO method or the LIFO method had been used. For 2019, the accounting records show the following data: Inventory Beginning (15,000 units) Ending (30,000 units) Purchase and Sales $32,000 Total net sales (215,000 units) $865,000 Total cost of goods purchased $595,000 (230,000 units) Operating expenses were $147,000, and the company's income tax rate is 34%. Purchase were made in different months as follows: Month Units March 31 60,000 June 30 50,000 September 30 50,000 December 31 70,000 Unit cost $2.40 2.50 2.60 2.80 Total 144,000 125,000 130,000 196,000 (a) Prepare comparative condensed income statements for 2019 under FIFO and LIFO. (Show computations of ending inventory.) (b) Answer the following questions for management 1) Which cost flow method (FIFO or LIFO) produces the more meaningful inventory amount for the balance sheet? Why? (2) Which cost flow method (FIFO or LIFO) produces the more meaningful net income? Why? (3) Which cost flow method (FIFO or LIFO) is more likely to approximate actual physical flow of the goods? Why? (4) How much additional cash will be available for management under LIFO than under FIFO? Why? (5) Will gross profit under the average-cost method be higher or lower than (i) FIFO and (ü) LIFO?
