Costing inventory Golden Eagle Company began operations in 2016 by selling a single product. Data on purchases and sales for the year were as follows:

Purchases:

Date Units Purchased Unit Cost Total Cost April 6 31,000 $36.60 $1,134,600 May 18 33,000 39.00 1,287,000 June 6 40,000 39.60 1,584,000 July 10 40,000 42.00 1,680,000 August 10 27,200 42.75 1,162,800 October 25 12,800 43.50 556,800 November 4 8,000 44.85 358,800 December 10 8,000 48.00 384,000 200,000 $8,148,000 Sales:

April 16,000 units May 16,000 June 20,000 July 24,000 August 28,000 September 28,000 October 18,000 November 10,000 December 8,000 Total units 168,000 Total sales $10,000,000 On January 4, 2017, the president of the company, Connie Kilmer, asked for your advice on costing the 32,000-unit physical inventory that was taken on December 31, 2016.

Moreover, since the firm plans to expand its product line, she asked for your advice on the use of a perpetual inventory system in the future.

1. Determine the cost of the December 31, 2016, inventory under the periodic system, using the

(a) first-in, first-out method,

(b) last-in, first-out method, and

(c) weighted average cost method.

2. Determine the gross profit for the year under each of the three methods in (1).

3.

a. Explain varying viewpoints why each of the three inventory costing methods may best reflect the results of operations for 2016.

b. Which of the three inventory costing methods may best reflect the replacement cost of the inventory on the balance sheet as of December 31, 2016?

c. Which inventory costing method would you choose to use for income tax purposes? Why?

d. Discuss the advantages and disadvantages of using a perpetual inventory system. From the data presented in this case, is there any indication of the adequacy of inventory levels during the year?