Question

Jackson Specialties has been in business for more than 50 years. The company maintains a perpetual inventory system, uses a LIFO flow assumption, and ends its fiscal year at December 31. At year-end, the cost of goods sold and inventory are adjusted to reflect periodic LIFO costing procedures.
A railroad strike has delayed the arrival of purchases ordered during the past several months of
2011, and Jackson Specialties has not been able to replenish its inventories as merchandise is sold. At December 22, one product appears in the company’s perpetual inventory records at the following unit costs:


Jackson Specialties has another 8,000 units of this product on order at the current wholesale cost of $30 per unit. Because of the railroad strike, however, these units have not yet arrived (the terms of purchase are F.O.B. destination). Jackson Specialties also has an order from a customer who wants to purchase 4,000 units of this product at the retail sales price of $47 per unit. Jackson
Specialties intend to make this sale on December 30, regardless of whether the 8,000 units on order arrive by this date. (The 4,000-unit sale will be shipped by truck, F.O.B. shipping point.)
Instructions
a. Are the units in inventory really more than 50 years old? Explain.
b. Prepare a schedule showing the sales revenue, cost of goods sold, and gross profit that will result from this sale on December 30, assuming that the 8,000 units currently on order (1) arrive before year-end and (2) do not arrive until sometime in the following year. (In each computation, show the number of units comprising the cost of goods sold and their related per-unit costs.
c. Comment on these results.
d. Might management be wise to delay this sale by a few days?Explain.


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  • CreatedApril 17, 2014
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