Save-Mart Centre Inc. began operations on May 1 and uses a perpetual inventory system. During May, the company had the following purchases and sales for one of its products:

Instructions
(a) Determine the cost of goods sold and cost of ending inventory using
(1) FIFO and
(2) Average cost. Ignore the effect of income tax. (For average, use unrounded numbers in your calculations but round to the nearest cent for presentation purposes in your answer.)
(b) What guidelines should Save-Mart consider in choosing between the FIFO and average cost methods?
(c) Which cost method produces the higher gross profit and profit?
(d) Which cost method produces the higher ending inventory valuation?
(e) Which cost method produces the higher cash flow?

Transcribed Image Text:

Purchases Sales Date Units Unit Cost Units Unit Price $100 110 115 May 12 $250 8 10 13 275 300 325 27