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Chapter 8: Question 10Q (page 421)

Zonker Inc. purchases 500 units of an item at an invoice cost of \(30,000. What is the cost per unit? If the goods are shipped f.o.b. shipping point and the freight bill was\)1,500, what is the cost per unit if Zonker Inc. pays the freight charges? If these items were bought on 2/10, n/30terms and the invoice and the freight bill were paid within the 10-day period, what would be the cost per unit?

Short Answer

Expert verified

Under the given cases, the cost per unit would be$60, $63, and $61.74, respectively.

Step by step solution

01

Cost per unit under the first case

Costperunit=TotalcostTotalunits=$31,000500=$60

02

Cost per unit under the second case

Totalcost=Costofacquisition+Freightcharges=$30,000+$1,500=$31,500

Costperunit=TotalcostTotalunits=$31,500500=$63

03

Cost per unit under the third case

Incurredcost=Totalcost-Discount=$31,500-$31500×2100=$31,500-$630=$30,870

Costperunit=IncurredcostTotalUnits=$30,870500=$61.74

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Most popular questions from this chapter

Ford Motor Co. is considering alternate methods of accounting for the cash discounts it takes when paying suppliers promptly. One method suggested was to report these discounts as financial income when payments are made. Comment on the propriety of this approach.

Oasis Company has used the dollar-value LIFO method for inventory cost determination for many years. The following data were extracted from Oasis’ records.

Price Ending Inventory Ending Inventory

Date Index at Base Prices at Dollar-Value LIFO

December 31, 2017 105 \(92,000 \)92,600

December 31, 2018 ? 97,000 98,350

Instructions

Calculate the index used for 2018 that yielded the above results.

The board of directors of Ichiro Corporation is considering whether or not it should instruct the accounting department to shift from a first-in, first out (FIFO) basis of pricing inventories to a last-in, first-out (LIFO) basis. The following information is available.

Sales 21,000 units @ \(50

Inventory, January 1 6,000 units @ 20

Purchases 6,000 units @ 22

10,000 units @ 25

7,000 units @ 30

Inventory, December 31 8,000 units @ ?

Operating expenses \)200,000

Instructions

Prepare a condensed income statement for the year on both bases for comparative purposes.

Explain the following terms.

(a) LIFO layer.

(b) LIFO reserve.

(c) LIFO effect.

Distinguish between product costs and period costs as they relate to inventory.
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