Crystal arts uses the fifo method of stock control., Business Management

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Crystal Arts

a) Opening stock is the price of a firm's stocks at the beginning of a trading period. The value is equal to that of the closing stock in the previous trading period. Clear definition is required for maximum marks.

b) Profit and Loss Account for Crystal Arts (this month)

 

LIFO ($)

FIFO ($)

 

Sales

15,000

15,000

 

Opening stock

5,000

5,000

10 @ $500 = $5,000

Plus Purchases

6,000

6,000

10 @ $600 = $6,000

Less Closing stock

2,500*

3,000#

* LIFO: 5 @ $500 = $2,500

COGS

8,500

8,000

# FIFO: 5 @ $600 = $3,000

Gross profit

6,500

7,000

 

Less Operating expenses

1,000

1,000

 

Operating profit before tax

5,500

6,000

 

Tax

1,650

1,800

@ 30% tax

Net profit after tax

3,850

4,200

 






 

Note that an extra 9.09% tax is paid if Crystal Arts uses the FIFO method of stock control. Given that chandeliers and the lower tax liabilities are non-perishable stocks; the firm may well prefer to use the LIFO method.

 


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