Botch Corp. sold 5,500 units of its product at $45 per unit in year 2011 and incurred operating expenses of $6 per unit in selling the units. It began the year with 600 units in inventory and made successive purchases of its product as follows.
Jan. 1 | Beginning inventory | 600 units @ $18 per unit |
Feb. 20 | Purchase | 1,500 units @ $19 per unit |
May 16 | Purchase | 700 units @ $20 per unit |
Oct. 3 | Purchase | 400 units @ $21 per unit |
Dec. 11 | Purchase | 3,300 units @ $22 per unit |
| Total | 6,500 units |
Required
1. Prepare comparative income statements similar to Exhibit 5.8 for the three inventory costing methods of FIFO, LIFO, and weighted average. (Round per unit costs to three decimals, but inventory balances to the dollar.) 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%.
2. How would the financial results from using the three alternative inventory costing methods change if Botch had been experiencing declining costs 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.
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