Question

Walmarket uses a periodic inventory system.It sells domestic appliances and one of the stores most popular products is a WM3 washing machine. The inventory quantities, purchases and sales of this product for the most recent year are as follows.

	Number of Units	Cost per Unit	Total Cost
Inventory, Jan. 1	12	$ 359	$ 4,308
First purchase (May 12)	15	$ 367	$ 5,505
Second purchase (July 9)	21	$ 370	$ 7,770
Third purchase (Oct. 4)	8	$ 378	$ 3,024
Fourth purchase (Dec. 18)	17	$ 384	$ 6,528
Goods available for sale	73		$ 27,135
Units sold during the year	51
Inventory, Dec. 31	22

a. Using periodic costing procedures, compute the cost of the December 31 inventory and the cost of goods sold for the WM3 systems during the year under each of the following cost flow assumptions.

1. First - in, first - out.

2. Last - in, first - out.

3. Average cost (round to nearest dollar, except unit cost).

b. Which of the three inventory pricing methods provides the most realistic balance sheet valuation of inventory in light of the current replacement cost of the WM3 units? Explain.

c. Does this same method also produce the most realistic measure of income in light of the current replacement cost of the WM3 units? Explain.

Answer 1

Answer is given below with working notes