Speed World Cycles sells high-performance motorcycles and motocross racers. One of Speed World’s most popular models is the Kazomma 900 dirt bike. During the current year, Speed World purchased eight of these cycles at the following costs:
|
Purchase date |
Units |
Purchased |
Unit cost |
Total cost |
|
July |
1 |
2 |
4,950 |
9,900 |
|
July |
22 |
3 |
5,000 |
15,000 |
|
Aug. |
3 |
3 |
5,100 |
40,200 |
On July 28, Speed World sold four Kazomma 900 dirt bikes to the Vince Wilson racing team. The remaining four bikes remained in inventory at September 30, the end of Speed World’s fiscal year.
Assume that Speed World uses a perpetual inventory system.
a (1) Compute the cost of goods sold relating to the sale on July 28 and the ending inventory of Kazomma 900 dirt bikes at September 30, using average cost method. (Omit the “$” sign in your response.)
a (2) Compute the cost of goods sold relating to the sale on July 28 and the ending inventory of Kazomma 900 dirt bikes at September 30, using FIFO method. (Omit the “$” sign in your response.)
a (3) Compute the cost of goods sold relating to the sale on July 28 and the ending inventory of Kazomma 900 dirt bikes at September 30, using LIFO method. (Omit the “$” sign in your response.)
b(1) Which of the three cost flow assumptions will result in Speed World Cycles reporting the highest net income for the current year?
b(2) Which of the three cost flow assumptions will minimize the income taxes owed by Speed World Cycles for the year?
b(3) May Speed World Cycles use the cost flow assumption that results in the highest net income for the current year in its financial statements, but use the cost flow assumption that minimizes taxable income for the current year in its income tax return?