Income comparisons and cost flows—periodic LO3 LO4 Shepard Company sold 2,000 units o...

Income comparisons and cost flows—periodic LO3 LO4

Shepard Company sold 2,000 units of its product at $108 per unit in year 2010 and incurred operating expenses of $14 per unit in selling the units. It began the year with 840 units in inventory and made successive purchases of its product as follows.

Required

1. Prepare comparative income statements similar to Exhibit 17.8 for the three inventory costing methods

of FIFO, LIFO, and weighted average. Include a detailed cost of goods sold section as part of

each statement. The company uses a periodic inventory system, and its income tax rate is 30%.

(Round per unit costs to three decimals, but inventory balances to the dollar.)

2. How would the financial results from using the three alternative inventory costing methods change

if Shepard had been experiencing decreasing prices in its purchases of inventory?

3. What advantages and disadvantages are offered by using (a) LIFO and (b) FIFO? Assume the continuing

trend of increasing costs.

Check (1) Net income: LIFO,

$42,210; FIFO, $48,678;

WA, $45,417