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Lewis Corporation Case 6-2

Answer #1
2009 - FIFO
Opening Inventory
Purchase

Total Inventory
Closing Inventory

Inventory Sold
Profit Margin

Cartoons

Unit Price

Total Price

1840
600
800
400
200
3840
420
400
200
1020
2820

$20.00
$20.25
$21.00
$21.25
$21.50

$36,800.00
$12,150.00
$16,800.00
$8,500.00
$4,300.00
$78,550.00
$8,820.00
$8,500.00
$4,300.00
$21,620.00
$56,930.00
$38,950.00

$21.00
$21.25
$21.50

2009 - LIFO
Opening Inventory
Purchase

Total Inventory
Closing Inventory

Inventory Sold
Profit Margin

Cartoons

Unit Price

Total Price

1840
600
800
400
200
3840
1020

$20.00
$20.25
$21.00
$21.25
$21.50

$36,800.00
$12,150.00
$16,800.00
$8,500.00
$4,300.00
$78,550.00
$20,400.00

$20.00

1020
2820

$20,400.00
$58,150.00
$37,730.00

2009 - Average Cost

Opening Inventory
Purchase

Total Inventory
Avg Cost/Unit
Closing Inventory
Inventory Sold
Profit Margin

Cartoons

Unit Price

Total Price

1840
600
800
400
200
3840

$20.00
$20.25
$21.00
$21.25
$21.50

$36,800.00
$12,150.00
$16,800.00
$8,500.00
$4,300.00
$78,550.00

$20.46
1020
2820

$20,864.84
$57,685.16
$38,194.84

Answer #2
Total Profit using FIFO from 2009-11
Profit Margin
Net Profit Post Tax
$73,138.50
Total Profit using LIFO from 2009-11
Profit Margin
Net Profit Post Tax
$71,029.50

As the Net Profit after Tax is more for FIFO, Lewis Corp should not make the change to LIFO if the
If the intension is to give less tax, LIFO should be followed.

Answer #3
In this case (LIFO) the inventory is decreased to that extent that several LIFO layers have been s
Hence this gives rise to a higher profit in 2012 than FIFO, so is the Profit after Tax (40%) = $214
Answer #4
LIFO Reserve
2009
FIFO
Average Cost
LIFO

CGS
EI
Total
$56,930.00 $21,620.00 $78,550.00
$57,685.16 $20,864.84 $78,550.00
$58,150.00 $20,400.00 $78,550.00
-$1,220.00 $1,220.00
LIFO Reserve for 2009 is $1220
LIFO Reserve for 2010 is $2300
LIFO Reserve increased by $1080 from 2009 to 2010. The change in the balance during the curr
Answer #5
The firm will continue to use FIFO in an inflationary situation to show higher profits

2010 - FIFO
Cartoons

Opening Inventory
Purchase

Total Inventory
Closing Inventory

Inventory Sold
Profit Margin

2011 - FIFO

Unit Price

1020
700
700
700
1000
4120
40
1000

$21.50
$21.50
$22.00
$22.25
$22.00
$22.25

1040
3080

Total Price

###
$15,050.00
$15,050.00
$15,400.00
$22,250.00
###
$880.00
$22,250.00

Opening Inventory
Purchase

Total Inventory
Closing Inventory

###
###
Inventory Sold
### Profit Margin

2010 - LIFO
Cartoons

Opening Inventory
Purchase

Total Inventory
Closing Inventory

Inventory Sold
Profit Margin

1020
700
700
700
1000
4120
1020
20

2011 - LIFO

Unit Price

$21.50
$21.50
$22.00
$22.25
$20.00
$21.50

1040
3080

Total Price

###
$15,050.00
$15,050.00
$15,400.00
$22,250.00
###
$20,400.00
$430.00

2011 - Average Cost

Cartoons

Total Inventory

Total Inventory
Closing Inventory

###
###
Inventory Sold
### Profit Margin

2010 - Average Cost

Opening Inventory
Purchase

Opening Inventory
Purchase

1020
700
700
700
1000
4120

Unit Price

$21.50
$21.50
$22.00
$22.25

Total Price

###
Opening Inventory
$15,050.00 Purchase
$15,050.00
$15,400.00
$22,250.00
###
Total Inventory

$21.51
Closing Inventory
Inventory Sold
Profit Margin

1040
3080

###
Closing Inventory
###
Inventory Sold
### Profit Margin

hould not make the change to LIFO if the objective is to show higher profit

tent that several LIFO layers have been stripped off. Due to this the inventory items have moved into the cos
O, so is the Profit after Tax (40%) = $21432

2010
FIFO
Average Cost
LIFO

CGS
$66,240.00
$66,246.05
$67,320.00
-$1,080.00

EI
Total
2011
$23,130.00 $89,370.00 FIFO
$22,368.80 $88,614.84 Average Cost
$20,830.00 $88,150.00 LIFO
$2,300.00

he change in the balance during the current year represents the current year's inflation in costs.

ation to show higher profits

2011 - FIFO
Cartoons

2012 - FIFO

Unit Price

1040
1000
700
700
700
4140
490
700

$22.50
$22.75
$23.00
$23.50
$23.00
$23.50

1190
2950

Total Price

$23,130.00
$22,500.00
$15,925.00
$16,100.00
$16,450.00
$94,105.00
$11,270.00
$16,450.00

Cartoons

Opening Inventory
Purchase

Total Inventory
Closing Inventory

$27,720.00
$66,385.00 Inventory Sold
$39,077.50 Profit Margin
$121,897.50

2011 - LIFO
Cartoons

1040
1000
700
700
700
4140
1040
150

Unit Price

$22.50
$22.75
$23.00
$23.50

$22.50

Total Price

$20,830.00
$22,500.00
$15,925.00
$16,100.00
$16,450.00
$91,805.00
$20,830.00
$3,375.00

Opening Inventory
Purchase

Total Inventory
Closing Inventory

$24,205.00
$67,600.00 Inventory Sold
$37,862.50 Profit Margin
$118,382.50
Unit Price

Total Price

$22.50
$22.75
$23.00
$23.50

$22,368.80
$22,500.00
$15,925.00
$16,100.00
$16,450.00
$93,343.80

$22.55
1190
2950

$24.00
$24.00
$24.00
$24.00
$24.00

90
2700

Cartoons

age Cost
1040
1000
700
700
700
4140

1190
400
400
400
400
2790
90

2012 - LIFO

1190
2950

Cartoons

Unit Price

$26,830.70
$66,513.09
$38,949.41

$121,008.20

1190
400
400
400
400
2790
90

90
2700

Unit Price

$24.00
$24.00
$24.00
$24.00
$20.00

have moved into the cost of goods sold at the costs established historically

CGS
$66,385.00
$66,513.09
$67,600.00
-$1,215.00

ion in costs.

EI
$27,720.00
$26,830.70
$24,205.00
$3,515.00

Total
2012
$94,105.00 FIFO
$93,343.80 Average Cost
$91,805.00 LIFO

CGS
$63,960.00

EI
2160

$60,805.00
1800
$3,155.00 $360.00

Total Price

###
$9,600.00
$9,600.00
$9,600.00
$9,600.00
###
$2,160.00

$2,160.00
###
###

###

Total Price

###
$9,600.00
$9,600.00
$9,600.00
$9,600.00
###
$1,800.00

$1,800.00
###
###

###

Total
$66,120.00
$62,605.00