Some of the information found on a detailed inventory card for Soave Stationery Ltd. for May is as follows:

Instructions
(a) From the above data, calculate the ending inventory based on each of the following cost formulas. Assume that perpetual inventory records are kept in units only and average cost is calculated monthly at each month end. Carry unit costs to the nearest cent and ending inventory to the nearest dollar.
1. First-in, first-out (FIFO)
2. Weighted average cost
(b) Based on your results in pan (a), and assuming that the average selling price per unit during May was S7.25, prepare partial income statements up to the "gross profit on sales" line. Calculate the gross profit percentage under each inventory cost formula. Comment on your results.
(c) Assume the perpetual inventory record is kept in dollars, and costs are calculated at the time of each withdrawal. Recalculate the amounts under this revised assumption, carrying average unit costs to four decimal places. Would the ending inventory amounts under each of the two cost formulas above be the same? Explain.

Transcribed Image Text:

Received No. of Units Unit Cost Issued No. of Units Balance No. of Units Date $2.90 1,150 2,200 1,500 2,100 1,600 2,300 1,200 2,500 1,700 3,200 1,900 May 1 (opening balance) 1,150 1,050 3.00 3.20 3.30 3.40 3.60 700 10 13 18 20 23 26 28 31 1,000 1,300 1,500 300 1,100 1,300