Crown Company Imports and Sells a Product Produced in Germany

Essay

Crown Company imports and sells a product produced in Germany. In the summer of 2018, a natural disaster disrupted production, affecting its supply of product. Crown uses the LIFO inventory method. On January 1, 2019, Crown's inventory records were as follows:

Through mid-December of 2019, purchases were limited to 50,000 units, because the cost had increased to $25 per unit. Crown sold 55,000 units during 2019 at a selling price of $50 per unit, which significantly depleted its inventory. The cost was expected to drop to $21 per unit by early January, 2020.
Required:
a. Assume that Crown makes no further purchases during 2019. Compute the gross profit for 2019.
b. Assume that Crown purchases 8,800 units before the end of December, 2019 at $25 each. Compute its gross profit for 2019.
c. If Crown's corporate tax rate is 30%, how much tax savings will result from the purchase of inventory before year end?