P6-7B The management of Clare Co. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods. For 2011, the accounting records show the following data.
Inventory, January 1 (10,000 units) $ 45,000
Cost of 100,000 units purchased 532,000
Selling price of 80,000 units sold 700,000
Operating expenses 140,000
Units purchased consisted of 35,000 units at $5.10 on May 10; 35,000 units at $5.30 on August 15; and 30,000 units at $5.60 on November 20. Income taxes are 30%.
Instructions
(a) Prepare comparative condensed income statements for 2011 under FIFO and LIFO. (Show computations of ending inventory.)
(b) Answer the following questions for management.
(1) Which inventory cost flow method produces the most meaningful inventory amount for the balance sheet? Why?
(2) Which inventory cost flow method produces the most meaningful net income? Why?
(3) Which inventory cost flow method is most 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) How much of the gross profit under FIFO is illusory in comparison with the gross profit under LIFO?
Click here for the solution: The management of Clare Co. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods
Showing posts with label Determining. Show all posts
Showing posts with label Determining. Show all posts
Monday, August 17, 2015
Sunday, July 12, 2015
The management of Utley Inc. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods
P6-7A The management of Utley Inc. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods. For 2008 the accounting records show these data.
Inventory, January 1 (10,000 Units) $35,000
Cost of 120,000 units purchased 504,500
Selling price of 100,000 units sold 665,000
Operating expenses 130,000
Units purchased consisted of 35,000 units at $4.00 on May 10; 60,000 units at $4.20 on August 15; and 25,000 units at $4.50 on November 20. Income taxes are 28%.
Instructions:
a. Prepare comparative condensed income statements for 2008 under FIFO and LIFO (show computations of ending inventory.)
b. Answer the following questions for management in the form of a business letter.
1. Which inventory cost flow method produces the most meaningful inventory amount for the balance sheet? Why?
2. Which inventory cost flow method produces the most meaningful net income? Why?
3. Which inventory cost flow method is most likely to approximate the actual physical flow of the goods? Why?
4. How much more cash will be available for management under LIFO than under FIFO? Why?
5. How much of the gross profit under FIFO is illusionary in comparison with the gross profit under LIFO?
Click here for the solution: The management of Utley Inc. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods
Inventory, January 1 (10,000 Units) $35,000
Cost of 120,000 units purchased 504,500
Selling price of 100,000 units sold 665,000
Operating expenses 130,000
Units purchased consisted of 35,000 units at $4.00 on May 10; 60,000 units at $4.20 on August 15; and 25,000 units at $4.50 on November 20. Income taxes are 28%.
Instructions:
a. Prepare comparative condensed income statements for 2008 under FIFO and LIFO (show computations of ending inventory.)
b. Answer the following questions for management in the form of a business letter.
1. Which inventory cost flow method produces the most meaningful inventory amount for the balance sheet? Why?
2. Which inventory cost flow method produces the most meaningful net income? Why?
3. Which inventory cost flow method is most likely to approximate the actual physical flow of the goods? Why?
4. How much more cash will be available for management under LIFO than under FIFO? Why?
5. How much of the gross profit under FIFO is illusionary in comparison with the gross profit under LIFO?
Click here for the solution: The management of Utley Inc. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods
Wednesday, June 24, 2015
Three different companies each purchased a machine on January 1, 2008, for $42,000
Problem 6-28 Determining the effect of depreciation expense on financial statements
Three different companies each purchased a machine on January 1, 2008, for $ 42,000. Each machine was expected to last five years or 200,000 hours. Salvage value was estimated to be $2,000. All three machines were operated for 50,000 hours in 2008, 55,000 hours in 2009, 40,000 hours in 2010, 44,000 hours in 2011, and 31,000 hours in 2012. Each of the three companies earned $ 30,000 of cash revenue during each of the five years. Company A uses straight- line depreciation, company B uses double- declining- balance depreciation, and company C uses units- of- production depreciation.
Required Answer each of the following questions. Ignore the effects of income taxes.
a. Which company will report the highest amount of net income for 2008?
b. Which company will report the lowest amount of net income for 2010?
c. Which company will report the highest book value on the December 31, 2010, balance sheet? d. Which company will report the highest amount of retained earnings on the December 31, 2011, balance sheet?
e. Which company will report the lowest amount of cash flow from operating activities on the 2010 statement of cash flows?
Click here for the solution: Three different companies each purchased a machine on January 1, 2008, for $42,000
Three different companies each purchased a machine on January 1, 2008, for $ 42,000. Each machine was expected to last five years or 200,000 hours. Salvage value was estimated to be $2,000. All three machines were operated for 50,000 hours in 2008, 55,000 hours in 2009, 40,000 hours in 2010, 44,000 hours in 2011, and 31,000 hours in 2012. Each of the three companies earned $ 30,000 of cash revenue during each of the five years. Company A uses straight- line depreciation, company B uses double- declining- balance depreciation, and company C uses units- of- production depreciation.
Required Answer each of the following questions. Ignore the effects of income taxes.
a. Which company will report the highest amount of net income for 2008?
b. Which company will report the lowest amount of net income for 2010?
c. Which company will report the highest book value on the December 31, 2010, balance sheet? d. Which company will report the highest amount of retained earnings on the December 31, 2011, balance sheet?
e. Which company will report the lowest amount of cash flow from operating activities on the 2010 statement of cash flows?
Click here for the solution: Three different companies each purchased a machine on January 1, 2008, for $42,000
Wednesday, June 17, 2015
Blackmon Manufacturing Company makes a product that it sells for $50 per unit
Problem 11-28 Determining the Break-even Point and Preparing a Contribution Margin Income Statement
Blackmon Manufacturing Company makes a product that it sells for $50 per unit. The company incurs variable manufacturing costs of $14 per unit. Variable selling expenses are $6 per unit, annual fixed manufacturing costs are $189,000, and fixed selling and administrative costs are $141,000 per year.
a. Determine the break even point in units and dollars
b. Confirm your results by preparing a contribution margin income statement for the break-even sales volume.
Check:
a. 11,000 units
Click here for the solution: Blackmon Manufacturing Company makes a product that it sells for $50 per unit
Blackmon Manufacturing Company makes a product that it sells for $50 per unit. The company incurs variable manufacturing costs of $14 per unit. Variable selling expenses are $6 per unit, annual fixed manufacturing costs are $189,000, and fixed selling and administrative costs are $141,000 per year.
a. Determine the break even point in units and dollars
b. Confirm your results by preparing a contribution margin income statement for the break-even sales volume.
Check:
a. 11,000 units
Click here for the solution: Blackmon Manufacturing Company makes a product that it sells for $50 per unit
(Determining and Interpreting Flexible Budget Variances) Use the standard price and cost data supplied in Problem 15-18. Assume that Holligan actually produce and sold 31,000 books
Problem 15-19 Determining and Interpreting Flexible Budget Variances
Use the standard price and cost data supplied in Problem 15-18. Assume that Holligan actually produce and sold 31,000 books. The actual sales price and costs incurred follow.
AND SO ON
Check:
Flexible Budget Variance of NI: $25,900 U
Click here for the solution: (Determining and Interpreting Flexible Budget Variances) Use the standard price and cost data supplied in Problem 15-18. Assume that Holligan actually produce and sold 31,000 books
Use the standard price and cost data supplied in Problem 15-18. Assume that Holligan actually produce and sold 31,000 books. The actual sales price and costs incurred follow.
AND SO ON
Check:
Flexible Budget Variance of NI: $25,900 U
Click here for the solution: (Determining and Interpreting Flexible Budget Variances) Use the standard price and cost data supplied in Problem 15-18. Assume that Holligan actually produce and sold 31,000 books
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