Problem 1

Priya Industries, a software manufacturer, uses the periodic inventory system. They had the following transactions for the month of June:

Beginning Inventory

400

units

@

$32

per unit

Purchase #1

420

units

@

$33

per unit

Purchase #2

480

units

@

$35

per unit

Purchase #3

500

units

@

$37

per unit

Purchase #4

550

units

@

$39

per unit

Priya sold 1,330 units throughout the period.

Required:

• Calculate the a) Ending Inventory and b) Cost of Goods Sold, assuming that the company uses the Last-in, First-out (LIFO) inventory valuation method.
• Calculate the a) Ending Inventory and b) Cost of Goods Sold, assuming that the company uses the First-in, First-out (FIFO) inventory valuation method.
• Calculate the a) Ending Inventory and b) Cost of Goods Sold, assuming that the company uses the Average Cost inventory valuation method.
• Which inventory valuation method produces the highest Net Income? Which method produces the highest Ending Inventory? Which method reduces taxes?
• What method would Priya Industries most likely use for the physical flow of the inventory? (This means, how would they physically move the inventory out of their warehouse). Why?