(APPENDIX 6B) INVENTORY COSTING METHODS Gavin Products uses a periodic inventory system. For 2008 and 2009, Gavin has the following data:

Activity Units Purchase Price

(per unit)

Sale Price

(per unit)

2008 Beginning Inventory 200 $ 9.00 Purchase, 2/15/2008 300 11.00 Sale, 3/10/2008 320 $25.00 Purchase, 9/15/2008 500 12.00 Sale, 11/3/2008 550 25.00 Purchase 12/20/2008 150 13.00 2009 Sale, 4/4/2009 200 25.00 Purchase, 6/25/2009 200 14.00 Sale, 12/18/2009 150 25.00 All purchases and sales are for cash.

Required:

. Compute cost of goods sold, the cost of ending inventory, and gross margin for each year using FIFO.

. Compute cost of goods sold, the cost of ending inventory, and gross margin for each year using LIFO.

. Compute cost of goods sold, the cost of ending inventory, and gross margin for each year using the average cost method. (Use four decimal places for per unit calculations and round all other numbers to the nearest dollar.)

. Which method would result in the lowest amount paid for taxes?

. Which method produces the most realistic amount for income? For inventory?

Explain your answer.

. What is the effect of purchases made later in the year on the gross margin when LIFO is employed? When FIFO is employed? Be sure to explain why any differences occur.

. If you worked Problem 6-56A, compare your answers. What are the differences? Be sure to explain why any differences occurred.

Problem Set B