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    miguel374's Avatar
    miguel374 Posts: 1, Reputation: 1
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    #1

    Mar 15, 2013, 06:54 PM
    Accounting
    Each company sold 400 units company A and company B a sold with FiFo and b sold with LiFo 100 units @ $10.00 200 units@ 10.50 200 units@11.50 100 units at @ $12.00 there is no beging balance in inventory Calculate the ending inventory and the cost of good sold for each company. How will the difference in cost of goods sold affect the net income?
    pready's Avatar
    pready Posts: 3,197, Reputation: 207
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    #2

    Mar 18, 2013, 07:12 AM
    First you have to think how the costs flow through to Cost of Goods sold. So For FIFO the first purchases will flow through to COGS while the ending inventory will contain the most recent purchaases. For LIFO your costs will be the opposite, which means that your recent purchases will flow to COGS while the first purchases will be in ending inventory.

    Now which costs will have a higher purchase price? The first purchases or the latest purchases? Once you are able to answer this question then you just need to analyze how the costs flow through from inventory to COGS, i.e. higher costs or lower costs going from inventory to COGS.

    Once you figure that out you need to know what affects net income. Net income is Revenues minus Expenses. Now you know what Net Income is you need to know how COGS affects Net Income. CoGS is an expense, so higher COGS will result in lower Net Income, while lower COGS will result in a higher Net Income.

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