The Washington Corporation is currently using first-in, first-out (FIFO) method of inventory valuation.

The president wants to know the effect of a change in inventory valuation method from first-in, first-out (FIFO) to las

Washington Corporation makes the following information available to you for the year 2016:

Sales: 42,000 units @ $100 each

Inventory on January 1, 2013: 12,000 units @ $40 each
Units purchased on January 15, 2013: 12,000 units @ $44 each
Units purchased on June 25, 2013: 20,000 units @ $50 each
Units purchased on December 20, 2013: 14,000 units @ $60 each
A physical count was made on December 31, 2016 and 16,000 units were found in inventory.
The total operating expenses of $400,000 were paid during the year 2016.

Solution

Purchases Sales
Date
units Price/unit Total units Price/unit Total
42,000 $100 $4,200,000
Jan 1,2013 Beginning inventory 12,000 $40 $480,000
Jan 15,2013 12,000 $44.00 $528,000
June 25,2013 20,000 $50.00 $1,000,000
Dec. 20,213 14,000 $60.00 $840,000
$2,368,000

FIFO: LIFO:
(14,000 units x $60) + (2,000 units x $60)= $840,000 + $100,000 = $940,000 (12,000 units x $40) + (4,000 units x $44

Cost of Goods sold: Cost of Goods sold:

Beginning Inventory + Total Purchase Beginning Inventory + Total
$480,000 + 2,368,000 = $2,848,000 $480,000 + 2,368,000 = $2,8

Ending Inventory: Ending Inventory:

$2,848,000 - $940,000 = $1, 908,000 $2,848,000 - $656,000 = $2,1

Gross Profit: Gross Profit:

$1,908,000 - 4,200,000 = $2,292,000 $2,192,000 - 4,200,000 = $2,

Net Operating income: Net Operating income:

$2,292,000 - 400,000 = $1, 890,000 $2,008,000 - 400,000 = $1,60
 y valuation.
rst-in, first-out (FIFO) to last-in, first-out (LIFO) method.

nits x $40) + (4,000 units x $44) = $480,000 + $176,000 = $656,000

Beginning Inventory + Total Purchase

$480,000 + 2,368,000 = $2,848,000

$2,848,000 - $656,000 = $2,192,000

$2,192,000 - 4,200,000 = $2,008,000

ating income:
$2,008,000 - 400,000 = $1,608,000