Question
Clear Sound Audio uses a periodic inventory system. One of the store's most popular products is an MP8 car stereo system. The inventory quantities, purchases
Clear Sound Audio uses a periodic inventory system. One of the store's most popular products is an MP8 car stereo system. The inventory quantities, purchases , and sales of this product for the most recent year are as follows;
Inventory, Jan. 1 number of units 12 , Cost per Unit $299 , Total Cost $3,588
First purchase ( May 12) number of units 15 , cost per units 306, total cost 4,590
Second purchase ( July 9) number of units 21, cost per unit 308, total cost 6,468
Third purchase ( Oct. 4) number of units 8 , cost per unit 315, total cost 2,520
Fourth purchase (Dec. 18) number of units 17, cost per unit 320, total cost 5,440
Goods available for sale number of units 73 ------------
$22,606
Units sold during the year number of units 51
Inventory, Dec.31 number of units 22
INSTRUCTIONS
a. Using periodic costing procedures, compute the cost of the December 31 inventory and the cost of goods sold for the MP8 systems during the year under each of the following cost flow assumption;
- First-in, first-out.
- Last-in, first-out.
- Average cost ( round to nearest dollar, except unit cost).
b. Which of the three inventory pricing methods provides 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.
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