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Essay / Research Paper Abstract
This 5 page paper is based on a case study supplied by the student and looks at the way changes in sales patterns and policy may impact on the cost of sales and the valuation of inventory. The paper starts by looking at a stock valuation and the production of an income sheet using last in first out (LIFO), then at changes in sales patterns which may impact on costs of goods/value of inventory. The change to first in first out (FIFO) is then considered, looking at the impact on the accounts and considering the ethical implications. The bibliography cites 4 sources.
Page Count:
5 pages (~225 words per page)
File: TS14_TEmerrimack.rtf
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Unformatted sample text from the term paper:
be calculated, the income and the costs of goods. The income is a straightforward calculation, as it is the amount of goods sold by the price they are sold for
(40,000 x $2,000). The cost of goods calculation is more complex, this is undertaken by looking at the stock that is sold and the cost of that stock. However,
the cost of the stock does not remain the same throughout the year and stock is carried forward from the pervious year. The last in first out, this means
that the stock that is received the most recently is assumed to be used first, so the value of the stock that is carried forward is the cost of the
stock that is the oldest. In this case there be the original carried forward stock still available on paper. This will give the following Figure 1 Pro forma income
statement Sales 80,000 Cost of goods sold 62,000 Gross profit 18,000 Selling and admin costs 10,000 Income before taxes 8,000 Income taxes 2,800 Net income 5,200 Question 2 The
accounting policy in place at the current time means that the most recent prices are used for the cost of goods, which increases the cost of goods in this case.
The sales pattern aid with this, as the level of sales means that the carried forward stock remains in tack throughout the year, even if this is only theoretically. However,
it is possible that the sales pattern may change, and if there is a different sales pattern the way the stock is used may change, for example, if instead of
10,000 sales per quarter, which is equal to the goods inward each quarter there is a sale pattern of 5,000, 20,000, 10,000 and the 5,000 for each of the quarters
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