Applying and Analyzing Inventory Costing Methods At the beginning of the current period, Chen carried 1,000 units of its product with a unit cost of $20. A summary of purchases during the current period follows. During the period, Chen sold 2,800 units.

	Units	Unit Cost	Cost
Beginning Inventory	1,000	$ 20	$ 20,000
Purchase #1	1,800	22	39,600
Purchase #2	800	26	20,800
Purchase #3	1,200	29	34,800

(a) Assume that Chen uses the first-in, first-out method. Compute both cost of good sold for the current period and the ending inventory balance. Use the financial statement effects template to record cost of goods sold for the period. Ending inventory balance $Answer Cost of goods sold $Answer

Use negative signs with answers, when appropriate.

	Balance Sheet
Transaction	Cash Asset	+	Noncash Assets	=	Liabilities	+	Contributed Capital	+	Earned Capital
Record FIFO cost of goods sold	Answer		Answer		Answer		Answer		Answer

Income Statement
Revenue	-	Expenses	=	Net Income
Answer		Answer		Answer

(b) Assume that Chen uses the last-in, first-out method. Compute both cost of good sold for the current period and the ending inventory balance. Ending inventory balance $Answer Cost of goods sold $Answer (c) Assume that Chen uses the average cost method. Compute both cost of good sold for the current period and the ending inventory balance. Ending inventory balance $Answer Cost of goods sold $Answer (d) Which of these three inventory costing methods would you choose to:

1. Reflect what is probably the physical flow of goods?

LIFO

FIFO

Average Cost

2. Minimize income taxes for the period?

LIFO

FIFO

Average Cost

3. Report the largest amount of income for the period?

LIFO

FIFO

Average Cost

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