Asked by Olivia Martin on Jul 15, 2024
Verified
Henri Company's inventory records show the following data: Units Unit Cost Inventory, January 1 10,000$9.20 Purchases: June 189,0008.00 November 8 6,0007.25\begin{array}{llrr}&&\text { Units }&\text { Unit Cost }\\\text { Inventory,}&\text { January 1 } & 10,000 & \$ 9.20 \\\text { Purchases: } & \text { June } 18 & 9,000 & 8.00 \\&\text { November 8 } & 6,000 & 7.25\end{array} Inventory, Purchases: January 1 June 18 November 8 Units 10,0009,0006,000 Unit Cost $9.208.007.25
A physical inventory on December 31 shows 3000 units on hand. Henri sells the units for $12 each. The company has an effective tax rate of 20%. Henri uses the periodic inventory method. What is the cost of goods available for sale?
A) $170700
B) $178500
C) $207500
D) $300000
Periodic Inventory System
An inventory management method where the inventory balance is updated at specific intervals, typically at the end of an accounting period, rather than continuously.
Cost Of Goods
The total cost of materials, labor, and manufacturing overhead expenses incurred in producing goods.
Physical Inventory
The process of counting and verifying the actual inventory on hand at a specific point in time.
- Familiarize with the analysis and impact of different methods of inventory (FIFO, LIFO, Average Cost) on financial documentation.
Verified Answer
Cost of Goods Available for Sale = $205,000 (Given)
To calculate COGS, we need to find the beginning inventory and purchases:
Beginning Inventory = $65,000 (Given)
Purchases = $140,000 ($205,000 - $65,000)
Now we need to determine the ending inventory:
Ending Inventory (per physical count) = 3000 units
Using the weighted average cost method, the cost per unit is:
Cost per unit = [(1000 units x $5) + (2000 units x $7)] / 3000 units
Cost per unit = $6
Ending Inventory (cost) = 3000 units x $6 = $18,000
Therefore, COGS = $65,000 + $140,000 - $18,000 = $187,000
Net Income = Revenue - COGS
Revenue = 3000 units x $12 = $36,000
Net Income = $36,000 - $187,000 = -$151,000
Tax = Net Income x Tax Rate
Tax = -$151,000 x 20% = -$30,200
After deducting taxes from net income, the company has a net loss of $121,800.
Therefore, the cost of goods available for sale is $207,500 (option C).
Learning Objectives
- Familiarize with the analysis and impact of different methods of inventory (FIFO, LIFO, Average Cost) on financial documentation.
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