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Chapter 5: 5-4PSB_5 (page 270)

Refer to the information in Problem 5-3B and assume the periodic inventory system is used.

Required

Analysis Component

5. If the company’s manager earns a bonus based on a percentage of gross profit, which method of inventory costing will the manager likely prefer?

Short Answer

Expert verified

The manager for inventory valuation will prefer theFIFO method.

Step by step solution

01

Definition of Bonus

The additional money given to the employee of the business entity is known as a bonus. It is considered a reward is given against performance.

02

Inventory costing method preferred by the manager

The highest gross is reported when the business entity uses the FIFO method for inventory costing. Under this situation, the manager will get higher compensation than other methods. Therefore, managers will prefer to implement the FIFO method for inventory valuation.

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Most popular questions from this chapter

Use the data in Exercise 5-3 to prepare comparative income statements for the month of January for Laker Company similar to those shown in Exhibit 5.8 for the four inventory methods. Assume expenses are $1,250, and that the applicable income tax rate is 40%. (Round amounts to cents.)

  1. Which method yields the highest net income?

Use the data and results from Exercise 5-5 to prepare comparative income statements for the month of January for the company similar to those shown in Exhibit 5.8 for the four inventory methods. Assume expenses are $1,250, and that the applicable income tax rate is 40%. (Round amounts to cents.)

Required

3. If costs were rising instead of falling, which method would yield the highest net income?

Refer to the information in QS 5-10 and assume the perpetual inventory system is used. Determine the costs assigned to ending inventory when costs are assigned based on the weighted average method. (Round per unit costs and inventory amounts to cents.)

Aloha Company uses a perpetual inventory system. It entered into the following calendar-year purchases and sales transactions. (For specific identification, the May 9 sale consisted of 80 units from beginning inventory and 100 units from the May 6 purchase; the May 30 sale consisted of 200 units from the May 6 purchase and 100 units from the May 25 purchase.)

Date

Activities

Units acquired at cost

Units sold at retail

May 1

Beginning inventory

150 units @ \(300.00 per unit

May 6

Purchase

350 units @ \)350.00 per unit

May 9

Sales

180 units @ \(1,200.00 per unit

May 17

Purchase

80 units @ \)450.00 per unit

May 25

Purchase

100 units @ \(458.00 per unit

May 30

Sales

300 units @ \)1,400.00 per unit

680 units

480 units

Required

Compute the cost assigned to ending inventory using (a) FIFO, (b) LIFO, (c) weighted average, and (d) specific identification. (Round all amounts to cents.)

Refer to the information in Problem 5-1A and assume the periodic inventory system is used. Required

2. Compute the number of units in ending inventory.

See all solutions

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