1: Why in your opinion did Jims accountant recommend the average cost method and what difference is there with the three other methods? Explain the main characteristics of each method of valuation of the inventory and the consequences they may have on the valuation of the inventory and determination of the net income in case of price fluctuation.

BUSINESS CASE (100 points) Jim has recently opened a dry fruits wholesale company dedicated to the sale of peanuts, almonds and pistachios. During its first month of activity, the company has made the following transactions: February 2: Purchase of Pistachios: Purchase of Almonds: Purchas of Peanuts: kg 2500 4000 6000 Price per kg $12 $7 $5 Amount $30,000 $28,000 $30,000 February 3: Purchase of Pistachios: Purchase of Almonds: Purchas of Peanuts: 1500 2000 2000 $14 $8 $6 $21,000 $16,000 $12,000 February 6: Sold to several clients: Pistachios: Almonds: Peanuts: 2000 2500 3000 $22 $13 $9 $44,000 $32,500 $27,000 February 6: Sold to Fruits Lovers Inc.: Pistachios: Almonds: Peanuts: 500 1000 1500 $22 $13 $10 $11,000 $13,000 $15,000 February 12 Purchase of Pistachios: Purchase of almonds: 1500 2000 $16 $10 $24,000 $20,000 February 13: Sale of peanuts to Peanuts Lovers Inc.: 3500 $10 $35,000 February 14: Purchase of Peanuts 6000 $6 $36,000 February 19: Sold to several clients: Pistachios: Almonds: Peanuts: 1000 1500 3000 $23 $15 $11 $23,000 $22,500 $33,000 February 25: Purchased from various suppliers: Pistachios: Almonds: Peanuts: 1000 1000 1000 $15 $11 $6 $15,000 $11,000 $6,000 Besides these transactions, the company has had the following expenses: Salaries: $3650 Electricity bill: $360 Renting of equipment: $950 Rent of warehouse and office: $1.650 Miscellaneous: $1.250 Jim's accountant recommended that he should use the average cost method in order to determine the cost of the inventory sold but he is not sure about the consequences it may have on his financial situation. Relying on your accounting knowledge, Jim asks you the following questions