Response to the following problem:
Western Produce Inc. uses the periodic inventory system. The following data are taken from the records of the company for the month of January 2018.
|
Goods available for sole
|
|
|
Soles
|
|
|
|
Units
|
Unit
cost
|
|
Units
|
Unit sell.
price
|
|
Opening Inventory
|
25
|
$S
|
|
|
|
|
Purchase #1
|
15
|
$4
|
Sale #1
|
30
|
$6
|
|
Purchase #2
|
10
|
$3
|
Sale #2
|
20
|
$4
|
|
Purchase #3
|
35
|
$2
|
Sale #3
|
50
|
$2
|
|
Purchase #4
|
40
|
$1
|
|
|
|
Required:
1. Calculate the amount of inventory at the end of January assuming that inventory is cost is calculated using FIFO inventory cost flow assumption.
2. How would the ending inventory differ if it was cost is calculated using weighted average?
3. Calculate the amount of gross profit under each of the above costing methods. Which method matches inventory costs more closely with revenues? Why?
4. Would more income tax be payable under the FIFO or weighted average method in a period of rising prices? Explain why.