Requirements: Determine the Cost of Goods Sold as well as the cost of Ending Inventory for each year using

each of the fo
(a) Average Cost; (b) First In, First Out; and (c) Last In, First Out. Assuming that the company originally used FIFO costing, d
realized if a switch is made from FIFO to LIFO. How much tax savings will be realized for each of the three years, if any?

ZIP Corporation had traditionally used the FIFO method of inventory valuation. You are given the following information on

1995 1995 Weighted Average

Beginning Balance 7,500 cases @ P 24.50 7,500.00 24.50 183,750.00
Purchases 500 cases @ 25.00 500.00 25.00 12,500.00
1,500 cases @ 28.25 1,500.00 28.25 42,375.00
1,500 cases @ 24.75 1,500.00 24.75 37,125.00
3,500 cases @ 29.00 3,500.00 29.00 101,500.00
14,500.00 26.02 377,250.00
2,000.00 26.02 52,034.48
Sales 12,500 cases @ 35.75 12,500.00 26.02 325,215.52

1996 Weighted Average

Beginning Balance 2,000 cases 2,000.00 26.02 52,034.48
Purchases 3,500 cases @ 28.75 3,500.00 28.75 100,625.00
5,500 cases @ 27.75 5,500.00 27.75 152,625.00
4,000 cases @ 30.75 4,000.00 30.75 123,000.00
5,000 cases @ 26.00 5,000.00 26.00 130,000.00
2,500 cases @ 27.50 2,500.00 27.50 68,750.00
22,500.00 27.87 627,034.48
7,000.00 27.87 195,077.39
Sales 15,500 cases @ 38.50 15,500.00 27.87 431,957.09

Weighted Average
1997
Beginning Balance 7,000 cases 7,000.00 27.87 195,077.39
Purchases 10,000 cases @ 35.75 10,000.00 35.75 357,500.00
500 cases @ 37.75 500.00 37.75 18,875.00
7,500 cases @ 34.50 7,500.00 34.50 258,750.00
8,500 cases @ 31.25 8,500.00 31.25 265,625.00
9,500 cases @ 32.50 9,500.00 32.50 308,750.00
300 cases @ 35.05 300.00 35.05 10,515.00
5,500 cases @ 37.75 5,500.00 37.75 207,625.00
48,800.00 33.25 1,622,717.39
28,800.00 33.25 957,669.28
Sales 20,000 cases @ 40.00 20,000.00 33.25 665,048.11
TOTAL COST 1995

Sales CGS Gross Profit

W. Ave. 446,875.00 325,215.52 121,659.48

FIFO 446,875.00 319,250.00 127,625.00 More taxes
LIFO 446,875.00 328,250.00 118,625.00

1996

Sales CGS Gross Profit

596,750.00 431,957.09 164,792.91 more taxes

596,750.00 447,250.00 149,500.00
596,750.00 432,750.00 164,000.00

1997

Sales CGS Gross Profit

800,000.00 665,048.11 134,951.89

800,000.00 648,375.00 151,625.00 more taxes
800,000.00 673,765.00 126,235.00
 for each year using each of the following methods:
any originally used FIFO costing, determine if tax savings will be
ach of the three years, if any?

ven the following information on transactions affecting ZIP’s inventory account:

FIFO
7,500.00 24.50 183,750.00
500.00 25.00 12,500.00
1,500.00 28.25 42,375.00
1,500.00 24.75 37,125.00
1,500.00 29.00 43,500.00
12,500.00 319,250.00 COGS
ENDING 2,000.00 29.00 58,000.00 ENDING
COGS

FIFO
2,000.00 29.00 58,000.00
3,500.00 28.75 100,625.00
5,500.00 27.75 152,625.00
4,000.00 30.75 123,000.00
500.00 26.00 13,000.00
- 27.50 -
15,500.00 447,250.00 COGS
ENDING 4,500.00 26.00 117,000.00
COGS 2,500.00 27.50 68,750.00
7,000.00 185,750.00 ENDING

FIFO
4,500.00 26.00 117,000.00
2,500.00 27.50 68,750.00
10,000.00 35.75 357,500.00
500.00 37.75 18,875.00
2,500.00 34.50 86,250.00
31.25 -
32.50 -
35.05 -
37.75 -
20,000.00 648,375.00 COGS
ENDING
COGS 5,000.00 34.50 172,500.00
8,500.00 31.25 265,625.00
9,500.00 32.50 308,750.00
300.00 35.05 10,515.00
5,500.00 37.75 207,625.00
28,800.00 965,015.00 ENDING
W. Ave.
FIFO
LIFO

W. Ave.
FIFO
LIFO

W. Ave.
FIFO
LIFO
LIFO
5,500.00 24.50 134,750.00
500.00 25.00 12,500.00
1,500.00 28.25 42,375.00
1,500.00 24.75 37,125.00
3,500.00 29.00 101,500.00
12,500.00 328,250.00 COGS
2,000.00 24.50 49,000.00 ENDING

LIFO
24.50 -
28.75 -
4,000.00 27.75 111,000.00
4,000.00 30.75 123,000.00
5,000.00 26.00 130,000.00
2,500.00 27.50 68,750.00
15,500.00 432,750.00 COGS
2,000.00 24.50 49,000.00
3,500.00 28.75 100,625.00
1,500.00 27.75 41,625.00
7,000.00 191,250.00 ENDING
LIFO

- -
35.75 -
37.75 -
34.50 -
4,700.00 31.25 146,875.00
9,500.00 32.50 308,750.00
300.00 35.05 10,515.00
5,500.00 37.75 207,625.00
20,000.00 33.69 673,765.00 COGS

7,000.00 191,250.00
10,000.00 35.75 357,500.00
500.00 37.75 18,875.00
7,500.00 34.50 258,750.00
3,800.00 31.25 118,750.00

28,800.00 945,125.00 ENDING