A Mach IV Audio uses a periodic inventory system. One of the store’s most popular products is an MP3 car stereo system. 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 | 10 | $299 | $ 2,990 |
First purchase (May 12) | 15 | 306 | 4,590 |
Second purchase (July 9) | 20 | 308 | 6,160 |
Third purchase (Oct. 4) | 8 | 315 | 2,520 |
Fourth purchase (Dec. 18) | 19 | 320 | 6,080 |
Goods available for sale | 72 |
| $22,340 |
Units sold during the year | 51 |
|
|
Inventory, Dec, 31 | 21 |
|
|
Instructions
a. Using periodic costing procedures, compute the cost of the December 31 inventory and the cost of goods sold for the MP3 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 MP3 units? Does this same method also produce the most realistic measure of income in light of the costs being incurred by Mach IV Audio to replace the MP3 systems when they are sold? Explain.
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