During January 2019, Preston’s Personal Computers, a retailer of personal computers, began operations. The transactions for January were as shown below (ignore GST).

Other expenses for the month were $1200.
Required

(a) Record the information on a perpetual inventory record using each of the following methods:
i. FIFO 

ii. moving average 

iii. LIFO.

(b) Prepare an income statement based on each of the three methods of inventory cost flows.

(c) Give reasons to the manager of Preston’s Personal Computers for the variations in cost of sales and profit in the three statements.

(d) What factors should be considered in choosing an inventory cost flow method? Make a recommendation to management on the appropriate cost flow method to use in this business.

(e) Assume that the manager wants to purchase another computer before the end of the month, but asks you first 

(i) how that will affect the profit for the month,

(ii) whether the purchase should be deferred until early February. 

The purchase price would not change. What would you recommend?

Transcribed Image Text:

Jan. 50 8 10 13 16 22 25 Purchased eight computers for $1300 each. Sold three computers for $2500 each. Purchased three computers for $1400 each. Sold one computer for $2500. Sold two computers for $2500 each. Purchased four computers for $1500 each. Sold two computers for $2600 each.