Case Study 9-1 LIFO Accounting at Tamar Chemicals Purchasing Policy Under LIFO Tamar Chemicals sells chemical...

 

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Case Study 9-1 LIFO Accounting at Tamar Chemicals Purchasing Policy Under LIFO Tamar Chemicals sells chemical compounds made from a mate rial known as Rtu330. The company has used LIFO as its inven- tory cost-flow assumption since it was founded 25 years ago. The inventory of Rtu330 on December 31, 2017 com prised 4,000 kg, costing $161,200. Most of the cost comes from inventory acquired in previous years, as shown in the fol- lowing table: 2017 Year-end Inventory Purchase price per kg Year acquired kg Cost 2008 $30 2,000 $60,000 2013 46 200 9,200 2014 48 400 19,200 2017 52 1,400 72,800 4,000 $161,200 Rru330 cost $62 per kg throughout most of 2018. It is now late 2018, and prices are not expected to change before the end of the year. But Tamar's purchasing agent expects the price to fall back to $57 early in 2019. Sales for 2018 require 7000 kg of Rtu330. Current policy is to maintain a stock of 4000 kg. Because of the pending price drop, the purchasing agent suggests that the company should decrease inventory to 600 kg by the end of 2018 and replenish it to the desired level of 4,000 kg early next year. The chief accountant disagrees. If inventory falls to 600 kg at the end of 2018, the consumption of old, low-cost LIPO layers will cause cost of goods sold to be unusually low. As a result, the company will face a high income tax liability. The chief accountant suggests that Tamar plan 2018 purchases to maintain an end-of-year inventory of 4,000 kg. Required f. Assuming that sales for 2018 require 7,000 kg of Ruu330, calculate the cost of goods sold and the end-of-year inventory for 2018 if Tamar Chemicals follows the advice of the chief accountant. 2. Recalculate cost of goods sold and the end-of-year inven tory if the company follows the purchasing agent's advice. 3. The CEO wants to know what discretion the company has to vary income in 2018 by planning its purchases of R330. If the firm follows the chief accountant's policy. net income for 2018 will be $60,000. What is the range of net income that the company can report by managing pur- chases of Ru330? Assume a tax rate of 30%. Case Study 9-1 LIFO Accounting at Tamar Chemicals Purchasing Policy Under LIFO Tamar Chemicals sells chemical compounds made from a mate rial known as Rtu330. The company has used LIFO as its inven- tory cost-flow assumption since it was founded 25 years ago. The inventory of Rtu330 on December 31, 2017 com prised 4,000 kg, costing $161,200. Most of the cost comes from inventory acquired in previous years, as shown in the fol- lowing table: 2017 Year-end Inventory Purchase price per kg Year acquired kg Cost 2008 $30 2,000 $60,000 2013 46 200 9,200 2014 48 400 19,200 2017 52 1,400 72,800 4,000 $161,200 Rru330 cost $62 per kg throughout most of 2018. It is now late 2018, and prices are not expected to change before the end of the year. But Tamar's purchasing agent expects the price to fall back to $57 early in 2019. Sales for 2018 require 7000 kg of Rtu330. Current policy is to maintain a stock of 4000 kg. Because of the pending price drop, the purchasing agent suggests that the company should decrease inventory to 600 kg by the end of 2018 and replenish it to the desired level of 4,000 kg early next year. The chief accountant disagrees. If inventory falls to 600 kg at the end of 2018, the consumption of old, low-cost LIPO layers will cause cost of goods sold to be unusually low. As a result, the company will face a high income tax liability. The chief accountant suggests that Tamar plan 2018 purchases to maintain an end-of-year inventory of 4,000 kg. Required f. Assuming that sales for 2018 require 7,000 kg of Ruu330, calculate the cost of goods sold and the end-of-year inventory for 2018 if Tamar Chemicals follows the advice of the chief accountant. 2. Recalculate cost of goods sold and the end-of-year inven tory if the company follows the purchasing agent's advice. 3. The CEO wants to know what discretion the company has to vary income in 2018 by planning its purchases of R330. If the firm follows the chief accountant's policy. net income for 2018 will be $60,000. What is the range of net income that the company can report by managing pur- chases of Ru330? Assume a tax rate of 30%.

Answer rating: 100% (QA)

1 Cost of good sold 434000 End of year Inventory Value for 4000 units 161200 As per chartered accoun... View the full answer