Azilda Inc. (Azilda) operates in a part of the computer industry where the cost of inventory has been falling recently. The cost of inventory purchased by Azilda over the last year is summarized below. Azilda values its inventory at the lower of cost and net realizable value. Assume that purchases are made at the start of a month before any sales occur during that month.

Required:

a. Calculate cost of sales for the year ended September 30, 2015 and ending inventory on September 30, 2015 for Azilda using the average cost and FIFO cost formulas.

b. Which cost formula is most attractive for an accounting objective of income maximization?

c. Which cost formula is most attractive for an accounting objective of tax minimization?

d. Compare the relative values under the two cost formulas of ending inventory and cost of sales in this situation versus a situation where prices are rising. What is different between the two situations?

e. Apply the lower of cost and market rule to the year-end inventory. Assume that Azilda’s selling costs for inventory are $300 per unit.

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Date Quantity Cost per unit Selling price per unit Purchases Opening inventory 175 $760 October 1, 2014 360 720 January 2, 2015 270 688 April 1, 2015 210 648 July 2, 2015 425 620 Sales October-December, 2014 405 $1,368 January-March, 2015 290 1,296 April-June, 2015 215 1,240 July-September, 2015 395 1,112