QUESTION 1

A retail firm is examining its inventory costing methods and considering the use of FIFO and Average Cost.

The following transactions occurred in April:

Beginning inventory was 20 units @ $100 each;

Purchased 8 units @ $150 each;

Sold 15 units @ $400 each.

Required:

(a) Calculate the Cost of Sales for April for each of the two inventory costing methods being considered by the retail firm (GST effects can be ignored).

FIFO

AVERAGE COST (round average cost per unit to the nearest whole dollar)

(b) Which inventory costing method will give the highest profit for April and why?

(c) If inventory prices were falling which inventory costing method would produce the highest profit and why?