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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