purposes? Explain.

Pr. 8-5A

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.

	Number of Units	Cost per Unit Total Cost
Inventory, Jan. 1		$ 3,588 $299
First purchase (May 12)	15	4,590 306
Second purchase (July 9)	21	308 6,468
Third purchase (Oct. 4)	00	315 2,520
Fourth purchase (Dec. 18)		5,440 320
Goods available for sale	=R i	$22,606
Units sold during the year
Inventory, Dec. 31

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 assumptions.

1. First-in, first-out.
2. Last-in, first-out.
3. Average cost (round to nearest dollar, except unit cost, and ignore small total rounding difference).

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