Question: Bravo Wholesalers, Inc., began its business on
Bravo Wholesalers, Inc., began its business on January 1, 2017. Information on its inventory
purchases and sales during 2017 follows:
Required:
Assume a tax rate of 40%.
1. Compute the cost of ending inventory and cost of goods sold under each of the following methods: (a) FIFO, (b) Weighted average cost, and (c) LIFO. Assume that Bravo uses the periodic inventory method.
2. Assume that Bravo uses the periodic LIFO method.
a. Calculate the replacement cost of the ending inventory and the LIFO reserve as of year-end. You may assume that year-end purchase cost was still $6.10 per unit.
b. Estimate Bravo’s cost of goods sold under the periodic FIFO method based only on the
information that will be publicly available to Bravo’s investors. Explain why your answer differs from FIFO cost of goods sold computed in requirement 1.
c. Bravo’s purchasing manager was planning to acquire 10,000 units of inventory on January 5, 2018, at $6.10 per unit. Its accountant suggests that the company will be better off if it acquires the inventory instead on December 31, 2017. What are the pros and cons of the accountant’s suggestion? Wherever possible, show supporting calculations.
3. Calculate the cost of goods sold assuming that Bravo uses (a) the perpetual FIFO method;
(b) the perpetual weighted average method.
Transcribed Image Text:
Inventory Purchases Units Cost per Unit Total January 1 March 10 8,000 $5.00 $ 40,000 10,000 5.10 51,000 April 15 September 11 November 12 12,000 5.30 63,600 10,000 5.55 55,500 6,000 5.75 34,500 December 1 7,500 5.85 43,875 December 29 6,500 6.10 39,650 Units available for sale 60,000 $ 328,125 Inventory Sales Units Price per Unit Total March 3 6,000 $9.00 $ 54,000 September 2 24,000 9.50 228,000 December 5 10,000 10.00 100,000 Units sold 40,000 $ 382,000
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