In October, Nicole eliminated all existing inventory of cosmeticitems. The trouble of ordering and tracking each product line hadexceeded the profits earned. In December, a supplier asked her tosell a prepackaged spa kit. Feeling she could manage a singleproduct line, Nicole agreed. Nicole’s Getaway Spa (NGS) would makemonthly purchases from the supplier at a cost that includedproduction costs and a transportation charge. NGS would keep trackof its new inventory using a perpetual inventory system. OnDecember 31, NGS purchased 20 units at a total cost of $5.30 perunit. Nicole purchased 20 more units at $7.30 in February. InMarch, Nicole purchased 20 units at $9.30 per unit. In May, 40units were purchased at $9.10 per unit. In June, NGS sold 40 unitsat a selling price of $11.30 per unit and 50 units at $11.70 perunit.
4.value: 0.25 pointsRequired information Required: 1. Statewhether the transportation cost included in each purchase should berecorded as a cost of the inventory or immediately expensed. Costof the Inventory Immediately Expensed
5.value:
2. Compute the Cost of Goods Available for Sale, Cost of GoodsSold, and Cost of Ending Inventory using the first-in, first-out(FIFO) method. (Round "Cost per Unit" to 2 decimal places.)
6.value:
4. Would a different inventory cost flow assumption allowNicole’s Getaway Spa to better minimize its income tax?
The LIFO method would allow Nicole’s Getaway Spa to betterminimize income tax. Product costs have been increasing, so LIFOwill produce the highest Cost of Goods Sold, which results in thelowest Income before Income Tax Expense.
The FIFO method would allow Nicole’s Getaway Spa to betterminimize income tax. Product costs have been increasing, so FIFOwill produce the highest Cost of Goods Sold, which results in thelowest Income before Income Tax Expense.
