S.Claus Company makes toys and gifts.At the beginning of July,it owned 200 gallons of red paint,which were recorded on the balance sheet at $4.00 per gallon.

The following events occurred in the next quarter. 1. Purchased 300 gallons on July 1 at $4.25 each. 2. Purchased 500 gallons on August 1 at $4.50 each. 3. Purchased 800 gallons during September at $4.75 each. 4. Used 1,450 gallons during July through September.

Required

a. Calculate the inventory balance at the end of September and the cost of goods sold (given away!) during these three months, using FIFO accounting.

b. Calculate the inventory balance at the end of September and the cost of goods sold (given away!) during these three months, using LIFO accounting.

c. Calculate the inventory balance at the end of September and the cost of goods sold (given away!) during these three months, using the average cost method to determine inventory balances.

d. Explain and discuss the differences shown under each method. Explain why the total costs of goods available for sale (delivery!) must be identical under all methods.

e. Under what circumstances would S. Claus prefer one method to the others?

Under what circumstances would S.Claus prefer one result to the others? Discuss how S. Claus might make a choice between inventory costing methods.