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 years 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, computer cost of the December 31 inventory in the cost of goods sold for the MP8 systems during the year under each of the following cost flow assumption:

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 provide 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 cost being incurred by Clear Sound Audio to replace the MP8 systems when they are sold? Explain.