Sun Care Company uses a perpetual inventory system and reports the following inventory transactions for the month of May:

Instructions
(a) Calculate the cost of goods sold and ending inventory under (1) FIFO and (2) average.
(b) Assuming all units are sold for $15 per unit, calculate gross profit under (1) FIFO and (2) average. Comment on why gross profit is not the same under the two methods.
(c) What impact, if any, does the choice of cost formula have on cash flow? Explain.

Transcribed Image Text:

Units 350 480 (510) 10 150 475 (Ga)) Unit Cost May Inventory Purchases $8 11 Sale 12 Sales return 17 Purchases 22 Purchases 29 Sale