Mach IV Audio uses a periodic inventory system. One of the store€™s most popular products is an
MP3 car stereo system. The inventory quantities, purchases, and sales of this product for the most recent year are as follows:

Instructions
a. Using periodic costing procedures, compute the cost of the December 31 inventory and the cost of goods sold for the MP3 systems during the year under each of the following cost flow assumptions:
1. First-in, first-out.
2. Last-in, first-out.
3. Average cost (round to nearest dollar, except unit cost).
b. Which of the three inventory pricing methods provides the most realistic balance sheet valuation of inventory in light of the current replacement cost of the MP3 units? Does this same method also produce the most realistic measure of income in light of the costs being incurred by Mach IV Audio to replace the MP3 systems when they aresold?

Transcribed Image Text:

Number Cost of Units per Unit Total Cost $299 306 308 315 320 $ 2,990 4,590 6,160 2,520 6,080 $22,340 Inventory, Jan. 1 First purchase (May 12) 10 15 20 8 19 72 51 21 Third purchase (Oct. 4) Fourth purchase (Dec. 18)- .. . Goods available for sale Units sold during the year Inventory, Dec. 31. .. .