Blanchard Company manufactures a single product that sells for $120 per unit and whose total variable costs are $84 per unit.

Blanchard Company manufactures a single product that sells for $120 per unit and whose total variable costs are $84 per unit. The company’s annual fixed costs are $627,000. The sales manager predicts that annual sales of the company’s product will soon reach 39,700 units and its price will increase to $197 per unit. According to the production manager, the variable costs are expected to increase to $137 per unit but fixed costs will remain at $627,000. The income tax rate is 35%. What amounts of pretax and after-tax income can the company expect to earn from these predicted changes?
Prepare a forecasted contribution margin income statement.

Explanation: BLANCHARD COMPANY Forecasted Contribution Margin Income Statement   Sales (39,700 × $197)   $ 7,820,900     Variable costs (39,700 × $137)     5,438,900           Contribution margin (39,700 × $60)     2,382,000     Fixed costs     627,000           Income before taxes     1,755,000     Income taxes (35% × $1,755,000)     614,250           Net income   $ 1,140,750

During 2015, Trombley Incorporated has the following inventory transactions.

Exercise 6-5 Calculate inventory amounts when costs are declining (LO3)

[The following information applies to the questions displayed below.]

During 2015, Trombley Incorporated has the following inventory transactions.

Date	Transaction	Number of Units	Unit Cost	Total Cost
Jan. 1	Beginning inventory	18	$ 20	$ 360
Mar. 4	Purchase	23	19	437
Jun. 9	Purchase	28	18	504
Nov. 11	Purchase	28	16	448
		97		$ 1,749

 
For the entire year, the company sells 71 units of inventory for $28 each.

Required:
1.	Using FIFO, calculate ending inventory, cost of goods sold, sales revenue, and gross profit.

 

Explanation:

1.

Date	Transaction	Number of Units	Unit Cost	Ending Inventory
Nov. 11	Purchase	26	$ 16	$ 416

  

Date	Transaction	Number of Units	Unit Cost	Cost of Goods Sold
Jan. 1	Beginning inventory	18	$ 20	$ 360
Mar. 4	Purchase	23	19	437
Jun. 9	Purchase	28	18	504
Nov. 11	Purchase	2	16	32
		71*		$ 1,333

* First 71 units purchased are assumed sold
 

Sales revenue = 71 units × $28 = $1,988

  

Gross profit	= Sales revenue − Cost of goods sold
	= $1,988 − $1,333 = $655

2.

Using LIFO, calculate ending inventory, cost of goods sold, sales revenue, and gross profit.

 

Explanation:

2.

Date	Transaction	Number of Units	Unit Cost	Ending Inventory
Jan. 1	Beginning Inventory	18	$ 20	$ 360
Mar. 4	Purchase	8	19	152
		26		$ 512

    

Date	Transaction	Number of Units	Unit Cost	Cost of Goods Sold
Mar. 4	Purchase	15	$ 19	$ 285
Jun. 9	Purchase	28	18	504
Nov. 11	Purchase	28	16	448
		71*		$ 1,237

* Last 71 units purchased are assumed sold
 

Sales revenue = 71 units × $28 = $1,988

  

Gross profit	= Sales revenue – Cost of goods sold
	= $1,988 − $1,237 = $751

Which method will result in higher profitability when inventory costs are declining?

LIFO

Weighted-average

FIFO

	FIFO	LIFO	Weighted Average
Gross profit	$ 655	$ 751	$ 708

     LIFO results in higher profitability when inventory costs are declining.

During 2015, TRC Corporation has the following inventory transactions.

Exercise 6-4 Calculate inventory amounts when costs are rising (LO3)

[The following information applies to the questions displayed below.]

During 2015, TRC Corporation has the following inventory transactions.

Date	Transaction	Number of Units	Unit   Cost	Total Cost
Jan. 1	Beginning inventory	48	$ 40	$	1,920
Apr. 7	Purchase	128	42		5,376
Jul. 16	Purchase	198	45		8,910
Oct. 6	Purchase	108	46		4,968
		482		$	21,174

For the entire year, the company sells 427 units of inventory for $58 each.

Required:
1.	Using FIFO, calculate ending inventory, cost of goods sold, sales revenue, and gross profit.

 

Explanation:

1.

Date	Transaction	Number of Units	Unit Cost	Ending Inventory
Oct. 6	Purchase	55	$ 46	$ 2,530

Date	Transaction	Number of Units	Unit Cost	Cost of Goods Sold
Jan. 1	Beginning inventory	48	$ 40	$	1,920
Apr. 7	Purchase	128	42		5,376
Jul. 16	Purchase	198	45		8,910
Oct. 6	Purchase	53	46		2,438
		427*		$	18,644

*First 427 units purchased are assumed sold

Sales revenue = 427 units × $58 = $24,766

Gross profit	= Sales revenue − Cost of goods sold
	= $24,766 − $18,644 = $6,122

Exercise 6-4 Part 2

2.	Using LIFO, calculate ending inventory, cost of goods sold, sales revenue, and gross profit.

 

Explanation:

2.

Date	Transaction	Number of Units	Unit Cost	Ending Inventory
Jan. 1	Beginning Inventory	48	$ 40	$ 1,920
Apr. 07		7	$42	$294
		55		$ 2,214

Date	Transaction	Number of Units	Unit Cost	Cost of Goods Sold
Apr. 7	Purchase	121	$ 42	$   5,082
Jul. 16	Purchase	198	45	8,910
Oct. 6	Purchase	108	46	4,968
		427*		$ 18,960

* Last 427 units purchased are assumed sold

Sales revenue = 427 units × $58 = $24,766

Gross profit	= Sales revenue – Cost of goods sold
	= $24,766 ? $18,960 = $5,806

Exercise 6-4 Part 3

3.

Using weighted-average cost, calculate ending inventory, cost of goods sold, sales revenue, and gross profit. (Round your average cost per unit to 4 decimal places.)   Explanation: 3.   Date Transaction Number of Units Unit Cost Total Cost   Jan. 1       Beginning inventory 48       $ 40         $ 1,920      Apr. 7       Purchase 128       42            5,376      Jul. 16       Purchase 198       45           8,910      Oct. 6       Purchase 108       46           4,968              482         $ 21,174              Weighted-average cost = $21,174/482 units = $43.9295 (rounded to 4 decimal places).      Ending inventory = 55 units × $43.9295 = $2,416      Cost of goods sold = 427 units × $43.9295 = $18,758 ($1 rounding error)      Sales revenue = 427 units × $58 = $24,766      Gross profit = Sales revenue − Cost of goods sold   = $24,766 − $18,758 = $6,008