Southern Cross Company Limited made the following purchases during the year:
|
Jan. |
7 |
8,000 |
units @ |
$12.00 = $ 96,000 |
|
Mar. |
30 |
9,000 |
units @ |
$12.40 = $111,600 |
|
May |
10 |
12,000 |
units @ |
$12.00 = $144,000 |
|
Jul. |
4 |
16,000 |
units @ |
$12.60 = $201,600 |
|
Sept. |
2 |
6,000 |
units @ |
$12.80 = $ 76,800 |
|
Dec. |
14 |
7,000 |
units @ |
$12.70 = $ 88,900 |
Opening inventory at January 1 amounted to 4,000 units at $11.90 per unit. Closing inventory at December 31 amounted to 15,000 units . For specific identification purposes, this consisted of 4,000 units of opening inventory, 8,000 units of the January 7 purchase, and 3,000 units of the March 30 purchase. Selling price during the year was stable at $16 per unit.
Required:
- Prepare a schedule of inventory as at December 31 based on FIFO, specific identification, and weighted average inventory cost flow assumptions. Assume a periodic inventory system is used.
- Prepare an income statement showing sales, cost of goods sold, and gross profit based on each of these three assumptions.
- Which method of inventory valuation matches revenues more closely with costs in this company under current conditions? Why?
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