During July, the following changes in inventory item for a merchandise company took place:

July 1 Balance 1,500 units @ $24

14 Purchased 300 units @ $36

24 Purchased 700 units @ $30

8 Sold 400 units @ $50

15 Sold 1,000 units @ $40

29 Sold 500 units @ $44

Periodic inventories are maintained.

Required:

1. What is the cost of the ending inventory for item 27 under the following methods? (Show calculations.) (6 marks) (a) FIFO. (b) LIFO.

2. Which method (LIFO or FIFO) do you prefer in the case of price increasing? Why? (7 marks)

3. Why is inventory valued at lower of cost or net realizable value? (7 marks)