Problem - The following information relates to the inventory of Harry's Hardware during the month of December:
|
|
Units
|
Unit cost
|
Total cost
|
|
Dec. 1 Beginning inventory
|
500
|
$5.00
|
$2,500
|
|
10 Purchases
|
500
|
5.30
|
2,650
|
|
23 Purchases
|
600
|
5.60
|
3,360
|
|
|
1600
|
|
$8,150
|
Harry's Hardware uses the periodic inventory system. During the month, 700 units were sold for $6300. A physical stock take on 31 December verified that 590 units were on hand. Ignore GST.
REQUIRED:
A. Prepare an income statement up to gross profit for December using each of the following costing methods:
- Specific identification, assuming that 300 units were sold from the beginning inventory and 400 units were sold from the first purchase
- FIFO
- LIFO
- Weighted average
B. Which cost flow method resulted in the highest gross profit on sales? The highest ending inventory? Explain why your results differ?