The management of Tudor Ltd. asks your help in determining the comparative effects of the FIFO and average-cost inventory cost fl ow methods. For 2017, the accounting records provide the data shown below.

Inventory, January 1 (10,000 units) 35,000 Cost of 120,000 units purchased 501,000 Selling price of 105,000 units sold 695,000 Operating expenses 130,000 Units purchased consisted of 40,000 units at 4.00 on May 10; 60,000 units at 4.20 on August 15; and 20,000 units at 4.45 on November 20. Income taxes are 28%. Instructions (a) Prepare comparative condensed income statements for 2017 under FIFO and averagecost. (Show computations of ending inventory.)

Answer the following questions for management in the form of a business letter. (1) Which inventory cost fl ow method produces the more meaningful inventory amount for the statement of fi nancial position? Why? (2) Which inventory cost fl ow method is more likely to approximate the actual physical fl ow of the goods? Why? (3) How much more cash will be available for management under average-cost than under FIFO? Why?