Use of a Perpetual Inventory System Darrell Keith is starting a new business. He plans to keep a tight control over it. Therefore, he wants to know exactly how much gross profi t he earns on each unit that he sells.

Darrell sets up an elaborate numbering system to identify each item as it is purchased and to match the item with a sales price. Each unit is assigned a number as follows:

a. The fi rst four numbers represent the month and day an item was received.

b. The second set of numbers is the last three numbers of the purchase order that authorized the purchase of the item.

c. The third set of numbers is the two-number department code assigned to different types of products.

d. The last three numbers are a chronological code assigned to units as they are received during a given day.
Required 1. Write a short memo to Darrell explaining the benefi ts and costs involved in a perpetual inventory system in conjunction with his quest to know exactly how much he will earn on each unit.
2. Comment on Darrell’s inventory system assuming that he is selling

(a) automobiles or

(b) trees, shrubs, and plants.
Decision Case 5-7 Inventory Costing Methods You are the controller for Georgetown Company. At the end of its fi rst year of operations, the company is experiencing cash fl ow problems. The following information has been accumulated during the year:
Purchases January 1,000 units @ $8 March 1,200 units @ 8 October 1,500 units @ 9 During the year, Georgetown sold 3,000 units at $15 each. The expected tax rate is 35%.
The president doesn’t understand how to report inventory in the fi nancial statements because no record of the cost of the units sold was kept as each sale was made.
Required 1. What inventory system must Georgetown use?
2. Determine the number of units on hand at the end of the year.
3. Explain cost-fl ow assumptions to the president and the method you recommend.
Prepare income statements to justify your position, comparing your recommended method with at least one other method.AppendixLO1