FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Dominick Portet Wines Inc. began operations to import fine wines from Australia to the United States. Sales and purchase information is provided below.
| Year 1 | Year 2 | Year 3 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Units | $ | Units | $ | Units | $ | ||||
| Sales | 510 | 660 | 900 | ||||||
| Purchases | 750 | @ | $10 | 600 | @ | $8 | ? | @ | 15 |
| LIFO ending inventory | 240 | @ | $10 | 180 | @ | $10 |
Assume that Portet Wines uses the LIFO method of inventory valuation. The purchase amount for Year 3 has been left blank because Portet Wines has not yet decided the total number of units to purchase during the year. (Assume that all sales occur on the last day of the year, after all purchases for the year have been made. The company's year-end is December 31.)
Required
- How many units should be purchased in Year 3 if the firm's objective is to maximize reported income for the year?
Answer - Compute the cost of goods sold for Year 3 assuming the number of units computed in (1) is purchased.
$Answer - How many units should be purchased in Year 3 if the firm's objective is to minimize income taxes for the year?
Answer - Compute the cost of goods sold for Year 3 assuming the number of units computed in (3) is purchased.
$Answer - Assume Portet Wines uses FIFO instead of LIFO and the company purchased just enough units to meet sales demand. What would the cost of goods sold be in Year 3?
Assume that FIFO ending inventory is equal to 240 units at $10 in Year 1 and 180 units at $8 in Year 2.
$Answer
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