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Rousseau Company uses the periodic LIFO inventory estimation method. At the beginning of the current fiscal year, the company’s inventory consisted of the following:
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Order Paper NowThese units were produced over several years, during which inventory costs had increased rapidly. During the current year, Rousseau produced 20,000 additional units of inventory at an average cost of 36 per unit. The average sales price of units sold during the year was
55.
Required Answer the following questions. A. What would be Rousseau’s gross profit and average gross profit per unit if it sold 20,000, 24,000, 28,000, or 36,000 units during the year?
B. Assume that Rousseau sold 36,000 units during the year. How many units would it need to produce to minimize the tax effect of its gross profit? How many units would it need to produce to maximize its gross profit?
C. If you were a manager of Rousseau and you wanted to control the amount of gross profit reported by the company, what could you do? If you wanted to develop an accounting standard that could prevent this type of management manipulation of income, what kind of standard might you propose?
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