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At the beginning of the current period, a company carried 750 units of its product with a unit cost of $29. A summary of purchases
At the beginning of the current period, a company carried 750 units of its product with a unit cost of $29. A summary of purchases during the current period follows. Also, during the current period, the company sold 2,675 units.
1. In general, explain if inventory costs are rising, which inventory costing methodfirst-in, first-out; last-in, first-out; or average costyields the (a) lowest ending inventory? (b) lowest net income? (c) largest ending inventory? (d) largest net income? (e) greatest cash flow, assuming the same method is used for tax purposes? | |||||
2. Assume that the company in this example uses the first-in, first-out method. Compute both cost of goods 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. | |||||
3. Assume that the company in this example uses the last-in, first-out method. Compute both cost of goods sold for the current period and the ending inventory balance. | |||||
4. Assume that the company in this example uses the average cost method. Compute both cost of goods sold for the current period and the ending inventory balance. |
Units | Unit Cost | Cost | |||
Beginning Inventory | 750 | 29.00 | 21,750 | ||
Purchases | |||||
#1 | 1,425 | 28.00 | 39,900 | ||
#2 | 795 | 34.00 | 27,030 | ||
#3 | 900 | 32.50 | 29,250 | ||
#4 | 1,240 | 30.50 | 37,820 |
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