Reference no: EM132857984

Assignment -

Part I - You then offer to take a look at Mr. Castro's inventory and calculate his cost of inventory using these different methods. He takes you into his stock room and shows you a small sample of his inventory.

"I have a number of fish tanks in my inventory," he explains. "At first, I bought 50 of them at a wholesale cost of $17 each. At the beginning of the month, I still had 36 left. So I bought 14 more, but now the same fish tank costs me $22. I've sold half of the fish tanks I had in stock since then, so I have 25 left."

Your task will now be to calculate inventory costs using the FIFO, LIFO, and weighted average methods. Be sure to show your work for each method.

Part II - Mr. Castro is impressed with your work and now wants you to quickly calculate the cost of his entire inventory. "I have a very large overall inventory," he says. "Aquariums require a lot of different items for upkeep, and we stock everything you can think of."

The last time his entire inventory was counted almost a year ago. It had a cost of $14,000. Since then, Mr. Castro's bought merchandise with a cost of $20,000. His sales were $11,000. His gross profit was 32 percent. This means the cost of goods sold is 68 percent of sales.

Your task will now be to calculate inventory costs using the gross profit method. Be sure to show your work.

Part III - "So which method would be the best for determining my gross profit and net income?" asks Mr. Castro. You then ask him to give you more information about when the fish tanks were ordered and when they sold. He explains that the 14 additional fish tanks were ordered on the 5th of the month, and he sold 12 of them on the 7th and the other 13 on the 10th.

Your task will now be to analyze the results of your calculations to determine the effect of each method on gross profit and net income. Then, you need to use your analysis to recommend the method that will best help Mr. Castro achieve his goals.

Use the following table to perform your analysis for the FIFO, LIFO, and weighted average methods. Then use this table to perform your analysis for the gross profit method.