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$1300000) (Apply perpetual FIFO and average cost; compare effects.) Family Appliance Mart Ltd. opened for business on May 1 and uses a perpetual inventory
$1300000) (Apply perpetual FIFO and average cost; compare effects.) Family Appliance Mart Ltd. opened for business on May 1 and uses a perpetual inventory system. During May, the company had the following purchases and sales for one of its products: Purchases Sales Date Units Unit Cost Units Unit Price May 1 110 $190 6 140 220 11 200 $350 14 80 230 21 100 400 27 50 250 Instructions a. Determine the cost of goods sold and cost of ending inventory using (1) FIFO and (2) average cost. (For average cost, use unrounded numbers in your calculations but round to the nearest cent for presentation purposes in your answer.) b. What guidelines should Family Appliance Mart consider in choosing between the FIFO and average cost formulas? c. Identify the cost formula the company should use if it wants to maximize gross profit and net income and explain why. d. Explain which formula produces the higher ending inventory valuation. e. Explain which cost formula produces the higher cash flow.
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