You are provided with the following information for Petro Pushers. Petro Pushers uses the periodic method of accounting for its inventory transactions.
March 1 Beginning inventory 2,200 liters at a cost of £0.60 per liter.
March 3 Purchased 2,500 liters at a cost of £0.65 per liter.
March 5 Sold 2,200 liters for £1.05 per liter.
March 10 Purchased 4,000 liters at a cost of £0.72 per liter.
March 20 Purchased 2,500 liters at a cost of £0.80 per liter.
March 30 Sold 5,500 liters for £1.25 per liter.
Instructions
(a) Prepare partial income statements through gross profit, and calculate the value of ending inventory that would be reported on the statement of financial position, under each of the following assumptions. (Round ending inventory and cost of goods sold to the nearest pound.)
(1) Specific identification method assuming:
(i) The March 5 sale consisted of 1,100 liters from the March 1 beginning inventory and 1,100 liters from the March 3 purchase; and
(ii) The March 30 sale consisted of the following number of units sold from beginning inventory and each purchase: 450 liters from March 1; 850 liters from
March 3; 2,900 liters from March 10; 1,300 liters from March 20.
(2) FIFO.
(3) Average-cost.
(b) How can companies use these methods to justify price increases? Which method would best support an argument to increase prices?