You are provided with the following information for Rondelli Inc. Rondelli Inc. uses the periodic method of accounting for its inventory transactions.

Instructions

(a) Prepare partial income statements through gross profit, and calculate the value of ending inventory that would be reported on the balance sheet, under each of the following cost flow assumptions.

(1) Specific identification method assuming:

(i) the March 5 sale consisted of 900 litres from the March 1 beginning inventory and 900 litres from the March 3 purchase; and

(ii) the March 30 sale consisted of the following number of units sold from beginning inventory and each purchase: 400 litres from March 1; 500 litres from March 3; 2,600 litres from March 10; 1,000 litres from March 20.

(2) FIFO.

(3) LIFO.

(b) How can companies use a cost flow method to justify price increases? Which cost flow method would best support an argument to increase prices?

Transcribed Image Text:

March 3 March 1 Beginning inventory 1,500 litres at a cost of 40 per litre. Purchased 2,000 litres at a cost of 45 per litre. Sold 1,800 litres for 60 per litre. March 5 March 10 Purchased 3,500 litres at a cost of 49 per litre. March 20 Purchased 2,000 litres at a cost of 55 per litre. March 30 Sold 4,500 litres for 70 per litre.