1. What are the characteristics of a just-in-time inventory system? Briefly explain some advantages and risks of this type of system

2. Why do companies that use perpetual inventory systems also take an annual physical inventory? When is this physical inventory usually taken? Why?

3. Under what circumstances might a company write down its inventory to carrying value below cost?

4. Clear Sound Audio uses a periodic inventory system. One of the stores most popular products is an MP8 car stereo system. The inventory quantities, purchases, and sales of this product for the most recent year are as follows:

........................................Number of Units...................... Cost per Unit........................ Total Cost

Inventory, Jan. 1...................... 12.......................................... $299.............................. $3,588

First purchase (May 12) ..........15........................................... 306................................... $4,590

Second Purchase (July 9)....... 21 ...........................................308................................... $6,468

Third Purchase (Oct. 4................. 8 .......................................315......................................... $2,520

Fourth Purchase (Dec. 18) ..........17....................................... 320 ........................................$5,440

Goods Available for sale............... 73....................................................................................... $22,606

Units sold during the year ................51

Inventory, Dec. 31............................... 22

Instructions

a. Using periodic costing procedures, compute the cost of the December 31 inventory and the cost of goods sold for the MP8 systems during the year under each of the following cost flow assumptions:

1. First-in, first-out

2. Last-in, first-out

3. Average cost (round to nearest dollar, except unit cost)

b. Which of the three inventory pricing methods provides the most realistic balance sheet valuation of inventory in light of the current replacement cost of the MP8 units? Does this same method also produce the most realistic measure of income in light of the costs being incurred by Clear Sound Audio to replace the MP8 systems when they are sold? Explain