On June 1, Welding Products Company had a beginning inventory of 210 cases of welding rods that had been purchased for $88 per case. Welding Products purchased 1,150 cases at a cost of $95 per case on June 3. On June 19, the company purchased another 950 cases at a cost of $112 per case. Sales data for the welding rods are as follows:
Date.........Cases Sold
June 9........990
June 29 ........975
Welding Products uses a perpetual inventory system, and the sales price of the welding rods was $130 per case.
Required:
1. Compute the cost of ending inventory and cost of goods sold using the FIFO method.
2. Compute the cost of ending inventory and cost of goods sold using the LIFO method.
3. Compute the cost of ending inventory and cost of goods sold using the average cost method.
4. Assume that operating expenses are $21,600 and Welding Products has a 30 percent tax rate. How much will the cash paid for income taxes differ among the three inventory methods?
5. Compute Welding Products’ gross profit ratio (rounded to two decimal places) and inventory turnover ratio (rounded to three decimal places) under each of the three inventory costing methods. How would the choice of inventory costing method affect these ratios?